What is Accounts Payable
Accounts Payable refers to the short-term financial obligations or debts that a company owes to its suppliers and creditors. They represent amounts owed for goods and services purchased on credit. Unlike accounts receivable, which refer to money owed to a company, accounts payable refer to money owed by a company.
When a company orders supplies, inventory, or other goods and services from a vendor, the vendor will usually issue an invoice for the purchase amount. The vendor expects this amount to be paid at a later date, which is known as the ‘payment period’. The company records this amount in its accounts payable, and must pay the vendor before the end of the payment period. Failure to pay on time can result in late fees, damaged credit, and legal issues.
Accounts payable obligations are shown on a company’s balance sheet and are recorded as current liabilities. The amounts owed are usually due within one year. Accounts payable help provide an accurate picture of a company’s financial obligations and health. High accounts payable may indicate a company has overextended itself by taking on more debt than it can pay off quickly.
The accounts payable process includes receiving and managing invoices, verifying them against contracts and orders, sending remittance and executing payments. Companies use manual or automated methods to handle accounts payable. Efficient management and processing of accounts payable is an important part of maintaining a healthy cash flow and positive relationships with vendors.
How to make AP efficient
Here are some stepsÂ to make Accounts Payable process efficient:
Why does AP Efficiency matter
Key metrics to track
Some important key metrics to track for Accounts Payable include: