Accounts Payable, or AP – in a Nutshell
Accounts payable represents the amount owed by a business to its vendors for unpaid supplies and goods received.
Unpaid balances due to vendors are recorded in accounts payable and appear on a company’s balance sheet as a liability. Thus, charting AP balances can be useful for understanding and managing cash flow and in determining a company’s financial stability.
Why Are Accounts Payable a Critical Part of My Business?
The AP department is a critical component of any business. Primarily, AP is responsible for accurately recording and tracking all expense payments made by the company. It is essential for any business to have an effective AP process in place with internal controls that prevent common errors such as over and underpayments, fraudulent payments, inaccurate payment amounts, unpaid/delayed vendor invoices, and invoices that don’t conform to previously agreed upon purchase orders.
Why Are Internal Controls Important to Accurate AP – and to My Company?
Internal controls with accurate expense coding ensure that information recorded in financial statements are a current, accurate, and reliable representation of a company’s liquidity. Additionally, an effective accounts payable department can identify and leverage opportunities to receive substantial benefits in the form of discounts or rebates offered by vendors for early payments made. AP departments that pay vendors through virtual credit card payments also can obtain additional rebates.
Conclusion – AP Efficiency Helps Optimize Your Business
Paper and manual processing of invoices for most AP Departments are inefficient and error-prone. And, using AP data collected to glean where processes can be improved and where the business can save in costs is tedious at best. It is only when an efficient accounts payable process is in place and with the right tools and know-how that an organization can truly optimize working capital and measure operational efficiency for sound business decisions and planning.
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