What Is Accounts Payable?

What Is Accounts Payable?

Your vendors and suppliers keep your business running. How so? You may ask. They supply you with the goods and services you need for your business. And often, if not always, you buy those items on credit. This is where accounts payable (AP) comes in. When you buy goods and services on credit that accounting entry is referred to as accounts payables.

Accounts payable also refers to the department in the business that is responsible for settling bills. Typically, big organizations have a separate department for handling vendor payments. However, in a small business, one accountant handles all finance operations.

Some basic functions cut across the accounts payable department. They include:

• Making internal payments

• Paying bills

• Managing travel expenses

• Vendor payments

Are accounts payables bad? Absolutely not. Many people think that owing to others is bad. However, accounts payables provide short-term financing for our business. Imagine, if you met all your business obligations in cash. Wouldn’t that strain your business liquidity immensely?

What’s the right amount of AP?

Accounts payable appears as a short-term liability in the balance sheet. In your books, AP is always a credit balance. The corresponding entry is either a debit of expenses or assets.

Is there a right amount of AP? Monitor your AP figure in the balance sheet. If the figure is too high, it means that your business isn’t fulfilling its obligations as they fall due. Also, a low figure indicates that your business is committing too much funds upfront when procuring for services.

Is AP worth your attention?

As a business owner, you might wonder whether you should pay much attention to your AP. Well, it’s critical to have a good relationship with your suppliers. Paying your suppliers on time may even save your business some coins. How so? Many suppliers offer discounts to buyers who pay their payables before the due date.

How then can I track my accounts payable? Have yourself a good AP system that will help you keep track of the due dates. Again, a robust accounting system tells you the cash position of your business, and from that, you can make informed decisions on settling your outstanding bills.

Accounts payable trends to look out for

Just like many other industries, the accounting industry has faced tremendous disruption by technology. As a business owner, it’s prudent to be aware of the upcoming trends to be ahead of the game. Let’s dive at some of the significant developments taking center-stage in the accounts payables.

• Automation in accounts payable

Automating accounts payable is becoming inevitable. With increasing business needs, automation is no longer a luxury but a necessity. Automation comes with benefits, such as time-saving, data accuracy, and increase in productivity.

To even go a notch higher, businesses are hosting their AP system on cloud to allow access from anywhere as long as you have internet access. If your business wants to make a mark in the current business climate, automation is the way to go.

• Paperless invoicing

Gone are the days that accountants kept piles of accounting files. With technology, your AP system can be integrated with that of your vendors to receive data automatically. This automation saves your accountant the laborious task of entering data manually.

• AP taking on an advisory role

It has nothing to do with technology, but it’s a notable trend on the rise. Current AP team is not constrained to the traditional roles of AP. Modern AP team is offering management with vital information necessary to make informed decisions.

To conclude

Accounts payable is a phrase heard in all companies that do business. Without question, it is a crucial segment in the company’s financials. With the adoption of new digital technologies like accounts payable automation, the function has been simplified.

With the new norm of working from home, and the social distance accounts payable automation comes in handy. Don’t let that paperwork slow you down; let the systems work for you. Accounts payable automation software is the way to go.

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