Accounts Payable (AP)

What are Accounts Payable Duties and Roles?

Most accounts payable jobs (e.g., accounts payable specialist, accounts payable clerk) focus on managing or assisting with the invoice-to-pay process.

As such, accounts payable responsibilities typically include processing supplier invoices, verifying purchase orders and receipts, and obtaining necessary approvals.

Some roles, though, also schedule payments according to payment terms, maintain vendor records, and ensure regulatory compliance.

What is the Accounts Payable Process?

Accounts payable procedures typically include the following steps:

1. Purchase Order Creation: Businesses request goods or services from a supplier via approved purchase orders.
2. Invoice Receipt: After goods are delivered or services are completed, suppliers send an invoice for the amount(s) owed.
3. Invoice Verification: AP teams match invoices to the original purchase order(s) and delivery receipt(s).
4. Update AP Records: After verification, companies record the invoice’s transaction as a debit to the appropriate expense account and a credit to accounts payable, creating a liability on the books until payment is made.
5. Approval Workflow: Verified invoices next go through various authorization channels based on the company’s policy.
6. Payment Processing: Approved invoices are scheduled for payment according to their payment terms.
7. Recordkeeping: Completed transactions are recorded in the organization’s general ledger and accounting systems.

AP Turnover

The accounts payable turnover ratio measures how frequently a company pays its suppliers during a specific period. It’s calculated by dividing total purchases by the average accounts payable balance. This metric helps assess cash flow management and supplier relationship health.

A higher turnover ratio indicates faster payment to suppliers, while a lower ratio may suggest cash flow constraints or strategic payment timing.

AP Software and Automation

Accounts payable automation software streamlines the AP process through digital accounts payable workflows, electronic invoice processing, and automated approval routing.

These accounts payable systems reduce manual data entry, minimize errors, provide real-time visibility into outstanding liabilities, and improve processing efficiency. For these reasons, many organizations partner with an accounts payable services provider, like Paylocity, with integrated procurement tools and platforms.

Accounts Receivable vs. Accounts Payable

Functionally, accounts payable and receivable are two sides of the same coin. Both are fundamental financial management concepts, but they operate as opposites.

Ultimately, the difference between accounts payable and accounts receivable is how they’re classified. Accounts payable represents money a business owes to others, while accounts receivable represents money others owe to the business.

Is Accounts Payable a Liability?

When adopting an accounts payable definition, most organizations classify it as a liability because it represents an obligation to pay money to external parties within a specified timeframe.

Since it's a financial obligation, AP usually appears on a balance sheet as a “current liability,” typically expected to be paid within one year. Accounts receivable, conversely, represent what others owe to the business, making it an asset.

AP Best Practices

Effective accounts payable system management requires implementing proven strategies and procedures to optimize efficiency and accuracy, including:

• Establishing a Clear Accounts Payable Workflow: Define authorization levels and routing procedures to ensure proper oversight and prevent unauthorized payments.
• Implementing Three-Way Matching: Match purchase orders, invoices, and receipts to verify accuracy and prevent duplicate or fraudulent payments.
• Maintaining Accurate Vendor Master Data: Keep supplier information current, including payment terms, contact details, and tax identification numbers.
• Conducting Regular Reconciliations: Perform monthly account reconciliations and aging reports to identify discrepancies and manage cash flow.
• Negotiating Favorable Payment Terms: Work with suppliers to secure optimal payment schedules that align with cash flow requirements.
• Taking Advantage of Early Payment Discounts: Capture available discounts when cash flow permits to reduce overall costs.
• Maintaining Strong Internal Controls: Implement segregation of duties, require proper documentation, and conduct regular audits to prevent fraud.