What Do Accounts Payable Do? Responsibilities & Process

Accounts payable represents the financial obligations a company has to its suppliers for goods and services received on credit. This means the money a business owes to others, typically due within a short period. These amounts are recorded as current liabilities on a company’s balance sheet, reflecting short-term debts that need to be settled.

The Core Responsibilities of Accounts Payable

The accounts payable department manages a company’s financial commitments to its vendors and suppliers. This involves receiving and processing invoices, including verifying the accuracy of the information provided by matching invoice details against purchase orders and receiving reports.

Accounts payable personnel obtain proper authorization for payments before disbursement, ensuring all expenditures are approved. The department processes payments to vendors, ensuring timely remittance to avoid late fees and maintain good relationships. Reconciling vendor statements with internal records is a regular duty, confirming all transactions are accurately accounted for. Maintaining precise and up-to-date vendor records, including payment terms and contact information, is another function.

The Accounts Payable Workflow

The accounts payable workflow begins with the receipt of invoices from suppliers, which can arrive through various channels. Once received, the invoice data is captured and entered into the accounting system, a step that can involve manual input or automated solutions.

Following data entry, the matching and verification process, often referred to as the “three-way match,” occurs. This involves comparing the supplier’s invoice with the corresponding purchase order and the receiving report or delivery receipt. This ensures that the quantity, price, and terms on all three documents align. If discrepancies are found, the invoice may be placed on hold until the issue is resolved.

After successful matching, the invoice proceeds to the approval stage, where it receives necessary internal authorizations. This approval signifies that the payment is legitimate and can be scheduled. The next step is payment processing, which involves selecting the appropriate payment method and generating the payment. The transaction is then recorded in the company’s financial records, updating the accounts payable ledger. Maintaining comprehensive records of all invoices, purchase orders, receiving reports, and payment details is essential for audit trails and compliance.

Why Accounts Payable Matters

Accounts payable operations are important for a company’s financial health. They ensure accurate financial records and reporting, providing a clear picture of a business’s liabilities and cash flow. This accuracy aids in producing reliable balance sheets and for compliance with financial reporting standards.

Managing accounts payable diligently helps maintain strong relationships with vendors and suppliers. Timely and accurate payments foster trust and can lead to favorable payment terms or discounts. A well-managed accounts payable function contributes to optimizing cash flow management by tracking obligations and payment due dates. It also helps prevent fraud and errors, as internal controls reduce the risk of illegitimate or duplicate payments.