Procurement Glossary & Terminologies

Definition

Accounts Payable is a corporate function or department that makes sure the company pays its suppliers and other invoices on time and correctly. The amount a company or particular organization owes to its suppliers and vendors is accounts payable. The sum is usually shown as a liability on the business’s balance sheet.

The term ""accounts payable"" refers to sums owed to suppliers or vendors for products or services received but not yet paid for. The accounts payable balance on the company’s balance statement represents all unpaid sums to vendors. To increase cash flow, management may decide to pay its outstanding debts as near their due dates as possible.”

Understanding Accounts Payable

Debt obligations that must be settled within a specific time frame to avoid default are known as accounts payable. At the corporate level, accounts payable refers to supplier short-term debt payments due. As a result of the transaction, the other party would increase its accounts receivable by an equal amount.

The control of accounts payable is essential to a company’s cash and credit flow. Account Payable rise over a previous quarter indicates that more goods and services are being purchased on credit by the business as opposed to the same amount being paid upfront. When an organization’s accounts payable decline, it indicates that it is paying back debts sooner than they accrue by making on-credit purchases of fresh goods and services.

Challenges in Accounts Payable

The following are some of challenges faced in accounts payable:

1. Tedious processing: Slower payments result from manual, paper-based processes, which prolong approval times while paperwork is transferred between offices. This is especially true if businesses are still mailing checks.

2. Matching errors: Data entry mistakes, missing or incorrect billing information, and the possibility that pertinent documents were prepared using various systems and formats are all significant causes of matching errors.

3. Manual follow-up and exception invoices: The accounts payable department spends a lot of effort handling exceptions, such as erroneous, lacking, and mismatched invoice information.

4. Fraud and theft: When executives or suppliers are impersonated, thieves send invoices or other payment requests that appear to be legitimate. Accounts payable fraud is something that the accounts payable team must continually watch out for.