What Is The Accounts Payable Process?

 

Just like accounts receivable is the amount due to your company by its customers, accounts payable is the money your business owes to its third parties including vendors or suppliers. Denoted by "AP", it is sometimes an entire department in big companies or is handled by a single member of the accounting staff in smaller firms.

However, the accounts payable is a critical part of your accounting function. This is because it covers almost every payment your company makes outside of payroll. Continue reading to know. about the accounts payable process and some problems faced by the AP professionals.

What is the accounts payable process?

Since accounts payable defines the money your business owes to its third parties, the AP process is responsible for ensuring timely payment for goods and services purchased by your company. In big companies, there is a specific department to handle the accounts payable process which looks after the incoming bills or invoices. However, different other functions may also be performed by the AP department depending upon the size & nature of the business.

Basically, the accounts payable process is broken down into four basic steps as listed below.

●      Receiving the invoice

●      Reviewing the invoice

●      Approving the invoice

●      Paying suppliers or vendors

Note that the length and complexity of an accounts payable process can vary from business to business.

Why is it necessary to manage accounts payable?

The need for proper management of accounts payable can be understood from the following points.

●      Timely management of AP results in strong relationships with your suppliers and vendors

●      Proper management of AP ensures uninterrupted delivery of goods and services which are foremost in the smooth running of your company

●      If there will be no overdue payments, there will be no risks of penalties or extra costs

●      No risk of making duplicate payments or missing any payment

●      Better management of your company's cash flow

Besides, there are several other benefits of managing accounts payable for your company.

What are the challenges faced by accounts payable professionals?

In the quest to manage accounts payable, the following are the several challenges faced by the professionals.

●  The accounts payable department is one of the most paper-intense departments. As a result, sorting, organizing, and processing the files steal time from your employees that could be spent on higher-value tasks. To avoid this, it is better to outsource your accounts payable operations to another company.

●    As the AP professionals need to enter data from multiple sources and in different formats, there are chances of slight errors and misplaced documents which can be avoided through outsourcing.

●      The lengthy approval processes for big amounts are time-consuming.

These are some of the major challenges faced by accounts payable professionals.

Conclusion

As it must be clear to you that although accounts payable is a critical operation for any business, it is equally time and effort-consuming. To let your employees focus on other key operations of the business, it is recommended to outsource it to a third party.