Accounts Payable Definition
Accounts payable (AP) refers to what is owed for items purchased on credit. It is considered a short-term debt, or money that a business owes its suppliers. It appears as a liability and shows how much a company owes to its suppliers for products or services that it purchased and received on credit.
Accounts payable may also refer to a company department that is in charge of paying invoices. The AP department’s main responsibility is to process and review transactions between the company and its suppliers, verifying invoices against purchase orders (POs), to ensure that goods and services were received before approving, processing, and issuing payment to their suppliers.
What is the process of accounts payable?
The procure-to-pay accounts payable process includes invoice data capture, coding invoices, approving invoices received, 2 and 3-way purchase-order (PO) matching, and posting for payments.
AP versus AR: What is the difference between AR and AP?
Both accounts payable (AP) and accounts receivable (AR) are important parts of the accounting process. While accounts payable is the amount of money owed to its suppliers, accounts receivable is the amount of money owed to a company from its customers. AP is considered a short-term liability, whereas AR is a current short-term asset.
How does AP Automation support businesses?
Many organizations use automation to streamline business processes within their accounts payable departments. While this process is straightforward, it can be cumbersome, especially with organizations that process thousands of invoices per month. In addition, this issue can be compounded by paper invoice use, the loss of invoices, human error, and duplicate invoices. These problems are just some of the reasons that organizations face a high cost per invoice metric.
AP automation resolves many issues faced by manual accounts payable processing. However, if the idea of selecting or implementing a new AP solution seems daunting, then hiring a new employee may be a temporary solution. But does hiring someone optimize your existing processes?
Taking the time to learn about different AP automation solutions such as EZ Cloud may benefit your organization in both the short and long-term. Not only is our patent-pending solution cost-effective, but our team supports your AP department with a seamless integration with your current ERP system and offers support along the way. That way, your AP team can enjoy greater productivity with faster approvals and all while receiving greater satisfaction for both your employees and suppliers.
Are you interested in AP Automation? Here are just a few FAQs:
At the start of this process, AP automation uses OCR, ML, or AI-based technology to extract information from invoices; using more advanced technology typically helps to improve accuracy over time. In addition, by customizing rules and workflows, such approval hierarchies, companies are able to eliminate the need for manual intervention for the majority of their invoices.
- Reducing the time and cost associated with processing invoices
- Increasing efficiency and accuracy
- Improving visibility into spending
- Reducing manual processes and paper usage
- Streamlining approvals
- Support for multiple currencies and languages
- Ability to integrate with your accounting software
- Electronic invoicing
- A payments process that aligns with your needs
- Workflow management
- Spend analysis and reporting
The integration process varies depending on the AP automation software and ERP platforms involved. While there are out-of-the-box offerings, in many cases, the AP automation software is installed on a company’s server and your automation software provider will provide in-depth training and consulting to set your team up for success.
AP automation also provides tools that can help you manage payments and cash flow more tightly. By making the payment process faster and smoother, AP automation can also increase your ability to capture supplier payment discounts.
Other benefits include less fraud, fewer errors and smoother audits.
- Cost – AP automation software can be costly to implement, especially for small businesses.
- Training – Employees will need to be trained on how to use the software, which can take time and resources.
- Change management – Implementing AP automation software can require significant changes to current processes and procedures. This can be disruptive for employees and may require additional training.
- The ability to capture invoices from multiple channels, such as email, fax, and paper.
- Optical character recognition (OCR, machine learning, and/or AI technology that can extract data from invoices automatically.
- A workflow engine that can route invoices for approval based on configurable rules.
- Integration with your accounting or ERP system.
- A vendor portal where suppliers can submit invoices electronically and check the status of payments.
