What is Account Payable, Role of Account Payable and Accounts Payable Process

What is Account Payable, Role of Account Payable and Accounts Payable Process

  • What Is Involved?

There are several companies out there that ought to have gone all through to the top in their notch but could not get to the height they are expected to achieve because of improper management of their financial figures. We are going to look into the technical details that are involved in the management of the finances of a company through the angle of accounts payable. 

The businesses of today fail because of the following factors:

  • Improper collaboration between the accounts department and the line managers
  • Lack of competent professionals handling the accounts process
  • Non-inclusion of the likes of Accounts Payable Outsourcing  


  • What Is Accounts Payable?

We must address this question of defining the meaning of this concept for a proper understanding. If your company purchases goods or services on credit, which you are required to pay back within a short period in time, then you have to carry out an accounting entry known as Accounts Payable (AP). There should be a department devoted to this called the AP department manned by competent hands. Every business that desires real growth should perfectly understand the question: what is accounts payable?


  • What Is The Role Of Accounts Payable?

In big companies, this department is a separate entity on its own. However, in smaller enterprises, they can be merged with other departments to achieve expected results. They are responsible for more than the functions earlier stated above. The following areas describe more about the accounts payable role description:

Vendor Payments

Questions are often asked about what does accounts payable include? AP is responsible for the effective coordination of vendor payments. What does it involve here; the following are the specific roles it plays:

  • Organizes vendor contract information
  • Their payment terms
  • Handles pre-approved purchase orders in some companies
  • Handles end of month aging analysis reports

Internal Payments

Another role of the AP in companies is that the handling of the internal payments needs to be kept in the line of the process moving in the right direction that leads to the achievement of goals. It handles the following functions within the organization:

  • Distributing internal reimbursement payments internally
  • Controlling and administering petty cash 
  • Controlling the distribution of sales tax exemption certificates
  • AP often handles the supply of sales tax exemption certificates issued to managers

Business Travel Expenses

In large business organizations, their AP department is responsible for the management and coordinating the travel expenses of their staff. Everything that has to do with payments on such official travels will be handled by the AP department of the company. They are responsible for:

  • Processing requests and distributing funds to cover travel expenses.
  • Responsible for settling funds
  • Settling every reimbursement requests

Apart from the above-mentioned functions; when a company goes into the contract of Accounts Payable Outsourcing; it will also achieve the following benefits for the organization:

  • This department is responsible for the economic management of the resources of the company in a way that will reduce the overhead costs incurred by the company and making sure that the gains are maximized by the company at the end of it all.
  • It acts as a direct line contact between the business and her vendor representatives
  • Assures a strong business relationship between business and vendor representative which might lead ultimately to relaxed credit terms


  • What Is Involved In AP Process?

It is important to understand the process that is involved in AP. There are processes to be followed by the AP before they can make any payment. An outline of the process is given below:

  1. Receiving the bill

It will state the quality of the goods received and on which payment is to be made

  1. Reviewing the Bill Details

The details should be contained in the bill. These details are to be reviewed before the bill can be accepted as legal and binding. The following are must-have details on the bill:

  • Vendor name
  • Authorization
  • Date and verified matching requirements for the purchase order.

The bill becomes legal and binding if it contains the above features

  • Updating records once the bill is received

Once the bill is received and seen to be genuine after fulfilling the requirements, the records are then updated. The ledger account needs to be updated and the managerial approval should be sought on the payment at this juncture.

  • Making timely payment

The terms of payment should be honored on or before the due date signed in the agreement. This is the bridge needed to build a lasting business association with the vendor.

  • How to Best Protect the Company’s Cash Assets

There should be an internal control mechanism by the AP to prevent fraudulent deals that are very common today. The AP should effectively guide against:

  • Paying a fraudulent invoice
  • Paying an inaccurate invoice
  • Paying a vendor invoice twice
  • Ensure all vendor invoices are accounted for


  • What Is Included In Accounts Payable?

This is a concept that appears on a company’s balance sheet as a current liability which contains short-term credits extended by vendors and creditors for good and services received by the company.

The above represents everything businesses need to understand about the concept of accounts payable process step by step guide.

It is an essential department in big business concerns which stands as an independent department. For small businesses, the department can be merged with some other departments to reduce the cost of running it alone.

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