What Is Account Payable? Definition, Process And Examples

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You are managing a startup company or small business, and you are wondering, “What is account payable? What is an accountant’s job description? And why does it matter to me? Well, you are not alone, so fear not. Accounts receivable vs. accounts payable are the yin and yang of business: In this article, we are going to unravel the meaning of accounts payable, receivables vs payables, processes of accounts payable, and benefits of accounts payable

What Exactly Is Accounts Payables (AP)?

Accounts payable (AP), also known as “payables,” are a company’s unpaid short-term obligations to creditors or suppliers. Payables appear as a current liability on a company’s balance sheet. Another less common meaning of “AP” is the business department or division in charge of making payments to suppliers and other creditors on behalf of the company.

Assume you purchase materials on credit from a supplier. They will send you a bill for those materials. The amount on that invoice is part of your accounts payable in your records. That invoice will be recorded in your supplier’s accounts receivable. Accounts payable vs accounts receivable are thus two sides of the same transaction.

What Does Accounts Payables Do?

The accounts payables department’s role is to provide financial, administrative, and clerical support to an organisation: this team is in charge of managing the entire accounts payable process. This is a critical role in the company’s accounting department, and it entails the coding, approval, payment, and reconciliation of vendor invoices.

Each responsibility of the accounts payable team contributes to the improvement of the payment process and ensures that payments are made only on legitimate and accurate bills and invoices. A knowledgeable and well-managed accounts payable department can save your company a significant amount of time and money in the AP process.

With automation capabilities, AP teams can easily decide when to pay invoices (to avoid late fees or take advantage of early pay discounts) and how to pay (via paper cheque, ACH, or virtual cards that earn cash-back rebates). As a result, organisations gain greater control over their outgoing cash and can even transform AP from a cost centre to a profit centre.

What is an Example of Accounts Payables Expenses?

Accounts payable are distinct from other current liabilities, such as short-term loans, accruals, proposed dividends, and bills of exchange payable. Accounts payable expenses include (but are not limited to) the following:

  • Logistics and transportation
  • Materials for Production
  • Energy / Fuel / Power
  • Products and Tools
  • Leasing
  • Licencing
  • Assembly and subcontracting services

If your organisation purchases any of the above-mentioned goods or services on credit, it is critical to immediately record the amount with AP. This will ensure that your balance sheet is always up to date and accurately reports the total amount owed to your vendors, allowing transparency in your bookkeeping and accounting efforts.

Procedures For Accounts Payables

The accounts payable process manages a company’s financial obligations to creditors and vendors. Accounts payable has four distinct steps from beginning to end:

#1. Invoice Capture

Invoice capture typically entails manually entering invoice data (vendor information, line items, amounts, and GL coding) into a system of record. This raises concerns about accuracy and human error.

#2. Invoice Approval

Invoice approval entails reviewing and approving supplier invoices. To obtain the necessary approvals, the AP team frequently walks the paper invoice around the office. This occurs before posting the expense as a cost in the ERP and sending payment.

#3. Payment Authorization

Once you have an invoice that is ready for payment, you must obtain payment authorization. This includes the date the payment will be submitted, the payment method, and the payment amount.

#4. Payment Execution

The invoice is paid, and remittance details are sent to the vendor after payment authorization. This frequently entails printing, signing, and mailing checks, initiating ACH with the bank, or processing credit card payments. The invoice can now be exited from the system and filed in various repositories.

The Advantages of Accounts Payables Automation

Accounting software can help businesses streamline the accounts payable process. Investing in this technology is advantageous for several reasons.

#1. Increased Precision

Human error is unavoidable in manual processes. Errors from outside the company can also jeopardize the financial data’s integrity. Automated processes reduce the likelihood of this happening and capture information from the original invoice to ensure accuracy.

#2. Time Management

Paying invoices on time while keeping cash flow liquid and obligations met is a common challenge. Companies can easily achieve this balance with automated processing, giving their accounting team more time to focus on other tasks.

#3. Monitoring

An audit trail is always left by a digital accounting system. When a transaction occurs, an accounting software tool records when it occurred, who handled it, and when each step of the payment process occurred.

#4. Standardised Processes

Miscommunication is all too common in businesses. One employee may do things one way, while another may do the same tasks differently. Implementing an automated accounts payable process is a simple yet effective way to bring the entire AP team on board.

Best Practices for Accounts Payable

The following are some best practices for overseeing accounts payable and ensuring your company’s finances run smoothly:

#1. Keep Accurate Accounts Payable Records

In the event of a payment dispute, keep a detailed accounts payable log. That way, you’ll have supporting documentation if you get a reminder about an allegedly unpaid invoice or as proof of spending during tax season. Create these accounting reports either manually or using accounting software.

#2. Use the Best Accounting Software

The best accounting software automates and simplifies accounts payable. It allows you to schedule and monitor payments while also controlling who has access to your financial information. It can also reduce errors and speed up the accounts payable process.

#3. Maintain Your Attention to Detail

It takes meticulous attention to detail to manage accounts payable. Each invoice must be checked for accuracy, as well as the billing and payment dates. Invoice information must be correctly entered into the general ledger or accounting software. Using skilled accountants and bookkeepers helps to ensure accuracy.

#4. Refer to the Original Invoices

When possible, work from the original invoice. Some invoices are sent via electronic means. Consider using invoice management software to organise your invoices as you receive them to avoid errors and confusion with electronic invoices. This can also be used as an unofficial accounts payable record.

#5. Make your Naming Convention Consistent

Always use the same naming convention or system. When assigning an invoice number in your system, follow a consistent, repeatable procedure. Choose a method that works for you, such as labelling invoices with the company name, month, and year when you save them.

#6. Enter Each Invoice Separately

Input each invoice separately, including monthly invoices from the same supplier. If a dispute arises, you’ll want to be able to easily locate each invoice within your system. Consolidating multiple invoices into one can lead to confusion and make it difficult to locate specific line items.

What is the Distinction Between Accounts Payable vs Receivable?

Accounts payable are the funds owed by your company to its suppliers. Accounts receivable, on the other hand, refer to the money owed to your company for goods or services provided.

Let’s say your company installs air conditioners as an example of accounts payable. When you purchase air conditioners for your inventory, you will issue a purchase order, the units will be delivered, and you will receive an invoice detailing how much you owe the supplier for the units that you received. This is accounted for as an account payable.

With us to this point? Great. Let’s continue

When you sell one of those air conditioners to a customer, you’ll deliver and install the unit before issuing an invoice for the equipment delivered and service rendered. This is recorded as inventory in the assets section and accounts payable in the liabilities section. Striking a good balance in receivables vs payables is very necessary for business growth.

Effects of Account Payable On Cash Flow

Cash flow is a measure of how much money is coming in versus how much is going out. Your Aaccounts Payable has a significant impact on cash flow, which affects how much working capital you have available.

In general, you want to maximise your cash flow by settling your accounts payable as slowly as possible and collecting your accounts receivable as quickly as possible.  

If you buy more inventory than you can sell in a given period, you will have a large amount due on your accounts payable, and the return on your accounts receivable may take a long time. This could result in negative cash flow, which can be problematic if it continues for too long.

You can avoid this problem by closely monitoring your receivables vs payables. You can make strategic decisions about purchasing stock and paying your invoices if you have a clear understanding of what’s coming in and going out, as well as their respective dates. Balancing receivables vs payables contributes to better financial efficiency.

Accountant Payable Job Description

A job description for accountant payable establishes the requirements as well as duties of applicants. An accounts payable clerk’s primary responsibilities include the following:

  • Invoicing processing
  • Verifying the information’s accuracy and completeness
  • Payment classification
  • Choosing payment terms
  • Creating payment plans

Accounts payable clerks may also be in charge of the following tasks:

  • Report writing
  • reconciling invoice discrepancies
  • Making vendor payments
  • Keeping track of vendor relationships
  • Answering questions
  • Resolving outstanding supplier issues

Individuals need relevant accounts payable skills to be successful in an accounts payable role. The job description for accountant payable roles emphasises significant tasks and expertise.

Challenges in The Accounts Payable Process

Numerous challenges in the accounts payable process must be carefully managed to ensure optimal performance.

Here is a list of some of the major issues:

#1. Data Entry and Manual Processes

It can take time and resources to manually manage bills and invoices in your business. When dealing with large amounts of data or foreign currencies/exchange rates, this becomes especially difficult. Manual processes also allow for more room for human error, which can lead to incorrect payments or missed deadlines.

#2. Invisibility of Committed Spend

Without proper cash flow visibility, businesses may miss out on opportunities to optimise costs or save money by taking advantage of vendor discounts.

Improved forecasting of payments in accounts payable can aid in cash flow and liquidity management.

#3. Insufficient Payment Processes

This could include sending multiple payments for single invoices or delaying payment to vendors for too long, resulting in late fees or other penalties. Inefficient payment processes also make managing accounts payable cash flow difficult because there is no way of knowing how much money will be available at any given time.

#4. Delays in Approval of Invoices

Each delay in an invoice processing step has a knock-on effect, delaying payment processing. The most significant delay is frequently caused by invoice approval delays. Who needs to sign off on this invoice? When you discover that they do not have enough information to approve, they must review the details and get back to you. When all of the necessary information is unavailable, it becomes more difficult to approve invoices.

#5. Document Management and Audit Trails

Working with paper causes numerous issues, not the least of which is that it goes missing. Paper invoices are no exception. Lost in a stack, dropped while moving to a new office. The management of relevant documents is automated by centralising and digitising invoice processing. Invoices are automatically captured, digitised, and backed up to the cloud.

Is Accounts Payable a Liability or an Asset?

Accounts payable is a liability because it is money owed to creditors and is listed on the balance sheet under current liabilities. Current liabilities are a company’s short-term liabilities, typically less than 90 days.

Who Handles Accounts Payable?

Accounts payable is a business department that handles all payments owed to vendors, suppliers, and other creditors. In smaller businesses, some accounts payable professionals work in an accounting department.

What Causes an Increase in Accounts Payable?

An overdue bill represents an increase in accounts payable, whereas paying that bill decreases accounts payable. You create a healthier cash flow by extending the payment period of your bills.

Is There a Debit or Credit Account for Accounts Payable?

To answer your question, accounts payable are a type of liability account. This means that when someone owes you money, it is considered credit.

What Is Another Word For Accounts Payable?

This page contains 7 account payable synonyms, antonyms, and words, including balance due, bill, debt, invoice, liability, and tab.


Keeping track of accounts payable has several advantages. Understanding how much money you owe assists business owners in managing cash flow and planning to meet all outstanding obligations. Your AP department can also strategically time debt payments, allowing you to operate with less cash on hand when doing so is advantageous for tax or business reasons.

Economic insurance demands effective oversight of receivables vs payables. Based on the job description, the accountant payable role consists of keeping track of cash flows and dealings with suppliers.


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