Accounts Payable

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3. What Is Accounts Payable? Definition, Process,
   Software, and Examples, With Job Description,
   Roles Responsibilities

Accounts Payable
What Is Accounts Payable? Definition, Process,
Software, and Examples, With Job Description,
Roles Responsibilities
Smriti Jain at May 31, 2023
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• Table of Contents
• What Is Accounts Payable?
• Understanding Accounts Payable (AP)
• Recording of Accounts Payable - The Accounts
  Payable Process or Workflow
• Trade Payables - Accounts Payable vs. Trade
  Payables
• Accounts Receivable - Accounts Payable vs.
  Accounts Receivable
• What Are Some Examples of Payables? Accounts
  Payable Best Practices
• Why Accounts Payable Software
• Benefits of Accounts Payable Automation
• Benefits Of AP Automation Software
• Accounts Payable Job Description,
  Responsibilities Skills
• The Bottom Line - Conclusion

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What Is Accounts Payable?

• Accounts Payable definition depicts that,
  Accounts Payable means the amount a company owes
  to third parties or suppliers for a short
  period. Any goods purchased on credit where the
  payment can be made after a short period of time
  is known
• as accounts payable.
• In short, it is the liabilities that a company
  bears for a short period of time. This credit
  created by accounts payable increases Current
  liability and hence it is recorded in the
  liability side of the balance sheet.
• Accounts Payable are short-term debt for a
  business or company or individual, when a
  company purchases goods on credit from a
  supplier for a short term, it is recorded in the
  current liability of the balance sheet. These
  dues a business clears on the predecided basis,
  here a creditor or supplier raises invoices to
  the purchaser or business. Which a business pay
  after internal approval or from the consent of
  the purchaser. For a better understanding of
  what does account payable means. We can easily
  relate it to our day-to-day life. We all consume
  some services such as Electricity for example
  for a whole month i.e. 30 days or 31 days in
  return we pay at the end of the month to the
  company.
• Please Note the Two Factors to Be Considered
  Primarily Important While Recording Accounts
  Payable-
• Time
• Accuracy

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Understanding Accounts Payable (AP)
A proper record of the time by which the money
needs to be paid and an accurate amount to be
disclosed helps in the transparency and
acceptability of the accounting treatment.

• Let us understand the end-to-end process-
• Receiving of Goods or Services or Invoice
• This stage of accounts payable is the initial
  stage which specifies the importance of the
  authenticity of the transaction and for further
  scrutiny of the transaction. A valid invoice with
  proper records needs to be obtained along with
  the goods or services.
• This also helps in the documentation of records.
  Certain important factors to look at in the
  invoice can be the vendors name, date, time,
  requirements raised at the time of purchase,
  quantity, proper stamp and signature. Always
  match the details of the actual goods or
  services received with the invoice provided
  along with the goods or services.
• Timely Recording Bill
• This stage deals with the documentation aspect of
  the process. As and when the invoices are
  received and after scrutiny, the invoice details
  must be updated in the ledger accounts. In case a
  company uses software then entries are to be
  made in the software after proper approval also
  a Maker and Checker step can help to reduce
  error and dual verification is also ensured.

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• Timely Payment
• This stage deals with the payment part of the
  process, where the decided due date of the goods
  received or service provided requires the unpaid
  amount to be paid by the buyer. The documents
  which are essential at this stage can be vendor
  bank account details, payment vouchers, purchase
  orders or contracts or agreements with the
  vendor and supplier. A gentle reminder before
  the due date to the supplier is a good practice
  in order to not land in a situation of defaults
  or continuous chasing behind the supplier.
• Closure
• This is the end part of the accounts payable
  cycle, as soon as the unpaid amount is paid,
  vendor books need to be closed. This would
  result in the reduction of the liability in the
  books of account of the company. The amount
  shown as current liability will no longer be
  treated as a liability. The steps are a generic
  process flow for understanding the meaning of
  accounts payable (AP) but can be different
  within different organizations.
• Recording of Accounts Payable - The Accounts
  Payable Process or Workflow
• Let's understand the recording of the Accounts
  Payable process in a company, generally, it is
  different companies wises, because some
  companies follow some steps some do not. Like
• Purchase requisitions - Whenever a company
  purchases or require material, they release a PR
  for internal approval.

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• Request for quotation - Once PR get approval from
  top management, then they share the PR with the
  different vendors for quotation or prices, which
  we call bidding, once the vendor submits the
  bid, companies do the analysis of the bid.
• Purchase order - Once the submitted price bid
  analysis is complete, companies release the
  Purchase order to the vendor who meets the
  requirement in terms of pricing, quality, terms
  etc.
• The supplier ships the goods to the buyer and
  shares the invoices.
• Companies conduct the GRN for received goods and
• Invoice approval takes place inside the company
• Payment - Once goods are supplied and received
  without making payment, it should be recorded as
  a liability in the books of accounts of
  suppliers or vendors based on the invoice
  amount. Eventually, when this amount is paid, the
  liability should be reduced from the balance.
  Reducing the overall current liability of the
  supplier.
• The Account Payable Process Depends on Various
  Factors Such As-
• Number of Vendors
• The volume of Payments or Transactions Over a
  Given Period of Time

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Trade Payables - Accounts Payable vs. Trade
Payables
The term Trade Payable is often used
interchangeably with accounts payable. However,
the two differ significantly. Trade payable is
the money a company owes to its vendor for
materials or supplies which are a part of the
inventory. In contrast to this, the meaning of
account payable is the total sum a company
owes. Accounts Receivable - Accounts Payable
vs. Accounts Receivable Accounts Payable and
Accounts Receivable are the antitheses. Account
payable means the amount a company owes to
another company or a service provider. In
contrast, account receivable means the amount
owed to the company. Account receivable is an
asset to the company. On purchasing a service or
goods, one of the parties will register the
amount as a payable account whereas, the other
party will add it as an account receivable on
their balance sheets. Lets discuss a few
accounts payable examples that explain the
accounts payable meaning. Company A and Company B
are in a business relationship. Company A makes
a purchase from Company B on credit. This amount
needs to be paid back within the stipulated
time. Now, for company A, this amount will be
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What Are Some Examples of Payables? Accounts
Payable Best Practices
registered as accounts payable. On the contrary,
for company B, this amount will be registered as
accounts receivable.

• This is a relevant example of what is an account
  payable? Here the services are given on credit
  by the company increasing their liability which
  would be paid in the following month within the
  dedicated due dates or deadlines which will
  ultimately reduce the liability. However, for
  the time being, the credit of service given by
  the company increases its current liability. Say
  for example, if Company A buys certain goods
  from Company B on credit with a timeline of 15
  days, the amount would be account payable for
  Company A but Account receivable for Company B.
  Hence the name itself suggests that the effect
  is on creditors, the more the creditors the more
  the accounts payable amount. It is also
  sometimes referred to as trade accounts payable.
• The concept of accounts payable can be
  generalized to our day- to-day lives as well.
  Just like companies purchase goods and services
  on credit, we too purchase services like house
  cleaning, electricity, data connections, and tv
  connections. Most of us pay our dues for the
  month, towards the month-end. Another account
  payable example can be an employee receiving his
  salary towards the end of the month for his
  services to the company.
• Why Accounts Payable Software
• Timely Savings

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• Elimination of stacks of paper
• Automation of your invoice approval workflow
• Smooth collaboration with the vendor by the
  creation of a purchase order and instantaneously
  sharing the purchase order and chatting with the
  supplier
• What Are Some of the Best Features of Our
  Accounts Payable Automation Software
• Masters Indias in One Software Provides a
  Seamless and Real- Time Solution for Vendor
  Payment Management. Our Software Ensures
• Bill inbox
• Spend analytics
• Vendor Portal
• Approval workflow
• Business management and user management
• Features where Drag Drop facility is available
  for your invoice or simply upload along with the
  facility of emailing the invoice
• Provision of an invoice audit trail to check
  invoice status
• Integration of the Accounts Payable Software with
  ERP
• Effective and efficient onboarding of suppliers
  and multiple business units
• Three-way match facility
• A dashboard to view requests accept or reject
  queries in real- time

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Benefits of Accounts Payable Automation

• Creation of invoices, debit and credit notes

The benefits of Account Payable Automation are
countless. Some of the best AP Automation
software can free your organisation from
unnecessary stress. Accounts payable program
refers to the set of activities involving the
process of paying debts to vendors for goods or
services received. A change can be unsettling in
the beginning, especially when a particular
process has been in action for ages. Changing
techniques and strategies within organisations
that have been using the same process for years
seems daunting. But in reality, there are
numerous advantages of automation within
organisations- especially when it comes to
processes involving accounts payable programs.
It is no denying fact that an organisation may
have sustained itself using paper-based, manual,
inefficient, and error-prone AP processes in the
past its high time that to take a closer
inspection at the usefulness or benefits of AP
automation and how it can empower a companys
finance department to work efficiently and
effectively. AP automation benefits an
organisation by cutting costs, generating cash
flow opportunities, and building goodwill with
vendors. Set an accounts payable benchmark for
your current accounts payable system and notice
how e-invoicing in place of paper- based
processes delivers massive benefits. Downfalls
Encountered By Conventional Accounts Payable
Workflow Processes Paper-based, manual,
and traditional AP environments are battling to
keep up with the world of advancements and
technologies. Even today, a bunch of
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industries tend to depend on processing invoices
manually. The manual AP process requires a lot
of time and resources while shifting data from
invoices into the computer, leading to plenty of
errors. Further, it is harsh to manage, involves
slow approval processing, increases the chances
of fraud, and is very expensive. Resolving these
blunders in traditional ways can cost you a great
deal of valuable time, money, and energy. But
wait! An excellent solution is waiting to
release you from the burden of issues and
negligences caused by humans ndash, and that is
the accounts payable process automation. With
the account payable benefits, you can experience
smooth accounts payable processes.
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Proof of Delivery
Benefits Of AP Automation Software Automation is
an indispensable aspect of any business in the
21st-century world. By now, you must be curious
to know what these modern technologies bring
with them that eliminates tried and tested
manual methods. Many organisations experience
frustration due to manual errors and delays when
these new technologies come into existence and
use. Not only can you eradicate frustration by
way of automation, but possessing the best
software in place can escalate your potential for
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• development and provide your organisation with
  unbelievably competitive accounts payable
  automation benefits.
• MORE PROMPT PAY DISCOUNTS
• Few companies offer early payment discounts in
  order to encourage clients to pay their invoices
  timely. Settling your invoices timely decreases
  the amount owed and makes it simpler to
  reconcile accounts. Additionally, it can boost
  your relationships with your current vendors.
• STRENGTHEN CUSTOMER SATISFACTION
• Delayed payments caused by lost or disorganised
  invoices can lead to supplier dissatisfaction.
  This is where AP automation software works like
  magic. Automation can lead to quick operations
  and strengthened relationships with the vendor.
• UPGRADING ACCURACY AND LIMITING FAULTS
• Accounting mistakes can cost you in multiple
  ways. Human errors can cause overpayments, late
  payments, and payments involving wrong amounts.
  Having authentic and reliable software at your
  place that attests to data and recognises
  exceptions may be the rescue youve been looking
  for. Ensuring accurate bookkeeping, validating
  data, and providing reliable routing through
  automation can improve productivity and minimise
  errors.
• CUSTOMISE YOUR PROCESSES
• Personalising and customising your AP process can
  enrich the quality of your AP department by
  suiting the company's workflow needs. If you
  accept invoices via multiple media or your
  invoices need to accompany specific routes, you
  can instruct the

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• automated workflow to stick to the path that will
  retain you the most time.
• GAINING THE COMPETITIVE EDGE
• If you want to gain a competitive advantage over
  your competitors in the market, automating your
  AP process is the next step you need to give
  your attention to. A quick return on investment
  and the financial usefulness of automation will
  provide you with enough of an edge. Additionally,
  time savings and error minimisation can give you
  immeasurable benefits.
• TIME EFFICIENCY
• With manual processing, it can take up to two
  weeks to entirely process an invoice, verify the
  numbers and get the required approvals and
  signatures. However, with the help of automated
  AP software, it just takes one to seven days to
  finish the entire process. Because you can
  complete the entire process faster and earlier,
  your faculty will have more time to focus on
  other significant areas of your company, thus
  improving your companys efficiency.
• WIDENING PROCESS VISIBILITY
• Manual filing and heaps of paper receipts are
  impossible to see the whole procedure on a
  single page. But it opposite in the case of
  automation. Electronic systems and software
  provide a boost in visibility by demonstrating
  relevant data solely to the authorised parties.
  Besides this, it gives a higher sense of
  transparency through all stages of the process
  about when and how much to pay to vendors, how
  to scale operations and how to accelerate
  efficiency.

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• ENCOURAGING WORKPLACE COOPERATION
• All the parties involved in assimilating and
  approving invoices, with the support of the
  speed and brilliance of the digital storage
  structure, can have concurrent access to all the
  necessary files. This accessibility gives way to
  real-time collaboration along with smooth
  efficiency when allocating documents, checking
  credentials, receiving clarification, and
  operating through inaccuracies. Accounts payable
  software for small businesses is less
  complicated as compared to big businesses.
• Accounts Payable Job Description,
  Responsibilities Skills
• Account payable management is one of the most
  important business processes that help in
  managing the accounts payable obligations of the
  entity in an effective and timely manner.
  Account payable management is an important tool
  for
• the sound functioning of the business. Let us
  learn the importance of Accounts paying
  management-
• Responsibility
• It assists the company in timely payment to
  vendors which ultimately results in long-term
  relationships with the vendor and helps in
  maintaining strong creditworthiness with the
  vendor for future business as well.

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• Ensuring Proper Flow of Business
• It helps to ensure the proper flow of goods or
  services by the vendor for the future as well
  without any hurdles and also attracts discounts
  and benefits from the vendor.
• Ensuring the Deadlines or Due Date
• It helps to ensure the important due dates and
  helps the company to never come on the list of
  defaulters.
• Proper Cash Flow Management
• It helps to maintain proper cash inflows and
  outflows by t imely evidencing the transaction.
  Account payable management helps a company to
  verify the authenticity of the invoice, as well
  as proper internal control, helps to safeguard
  the company from any fraudulent invoices or
  unfair practices or exceptional losses.
• Accounts payable is the recording and processing
  of financial transactions relating to
  procurement and supplies. The roles can be
  specifically divided into-
• Data entry role-
• Feeding the system with invoice details
  accurately
• Payment processing role-
• Ensuring timely payment of invoices to maintain
  proper creditworthiness
• Handling disputes and legal matters-
• Providing timely redress of disputes if any, and
  helping the
• company maintain a healthy relationship with the
  vendor or creditor.

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• Vendor or creditor maintenance-
• Properly recording and timely recording of the
  vendors or creditors database.
• Accounts payable manager-
• Ensuring the team is coordinating well with the
  vendor and
• proper documentation of invoices is happening for
  accuracy and efficiency. Accounts Payable
  Accounting (AP) Accounting- When recording
  accounts payable entry debit the assets and
  credit the accounts payable account. Assets Dr To
  Accounts Payable Cr. When the payment is made,
  Debit the accounts payable account and credit
  cash or bank. Accounts Payable Dr To Cash or
  Bank Cr. Accounts payable form an integral part
  of the balance sheet and are directly related to
  cash flows affecting the financial position of
  the company and the cash cycle. Like every
  component of the balance sheet,
• Accounts payable can also be forecasted in a
  financial model with the below approaches-
• Days payable outstanding-
• DPO Average accounts payable / Cost of goods
  sold or purchases X 365
• DPO Average Accounts payable / (Cost of sales /
  Number of days in accounting period)
• The more data you have, the more accurate your
  future accounts payable forecasts will be and
  you will be able to identify trends.
• You can also improve your cash flows and maintain
  your desired cash flow and desired cash cycle to
  avoid liquidity problems or a
• shortage of cash.

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The Bottom Line - Conclusion

• Recently accounts payable process companies have
  started the adoption of automation. It
  automation, centralizes and simplifies every bit
  of the accounts payable process. A manual AP
  process can be now simplified through Invoice
  OCR Accounts Payable Software.
• Once Invoices reach one destination - data
  extraction from invoices.
• Automatic classification involving the type of
  document and any supporting documents then
  organizes using business logic.
• Numbers are quickly verified against calculation.
• Invoices are matched with Purchase Orders.
• Payments are made automatically as per the
  organizations policy.
• Easily exportable PDFs to be documented in the
  companys system.