Learn more about the accounts payable process & its related procedures. Find out the importance & challenges involved in accounts payable processing. https://nanonets.com/blog/accounts-payable-process/

1. The Accounts Payable
Process

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Introduction
The Accounts Payable or Account Payable (AP is the amount of money that a
business entity owes to vendors/suppliers for availing their goods/services.
The Accounts Payable Process is the management and execution of the
company’s short-term payment obligations to the vendor/supplier.

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The Basic AP Workflow Process
The scale of Accounts Payable Processing of any organization depends
on:
● the number of vendors/service providers that cater to its needs
● the quantum of payment expected to be made over a short period of time
● the types documentation required to validate the purchase process

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The Basic AP Workflow Process
● Receive the bill/invoice from vendor
● Verify the data on the bill/invoice
● Update the records of bills/invoice
● Make payment within the due date
● Close ledge account for the transaction

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Documents associated with the AP
Process
Depending on the scale of operations, the accounts payable procedures of
a company may include many or all of the following documents:
● Purchase Order – the PO
● Receiving report
● Vendor Invoice
● Vouchers

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The Importance of AP Management and
Accounts Payable Workflow
● It helps prompt payment of bills, which is important for the creditworthiness of
the company and helps establish healthy relationships between the vendor and
the company.
● Prompt payments also prevent overdue charges, penalties, or late fees.
● Accounts Payable Processing keeps overspending in check, and prevents
multiple/duplicate payments for the same product/service.
● It keeps track of the company’s needs and purchases, which helps avoid delays
and interruption in the day-to-day functioning of the company.

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The Importance of AP Management and
Accounts Payable Workflow Cont
● It consolidates all purchase actions for easy retrieval.
● AP processing eliminates fraud through stringent follow-up and checks at every
stage of the process.
● It helps better management of cash flow by enabling payments only when due,
using the credit facility offered by vendors etc.

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The Breadth of the AP Process
The AP maintains records of all financial aspects of purchases made by the
company, which is crucial for auditing and tax purposes.
The main goals of the AP are:
● To ensure that payments are legitimate and accurate
● To leverage early payments or dynamic discounts.

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Challenges to the AP Process
● Time delays
● Matching errors
● Exception management
● Unnecessary purchases
● Fraud and theft
● Missing documents
● Double payment
● Blind spots
● Outsourcing accounts payable activities vs Automating AP responsibilities

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Streamlining the Account Payable Cycle
Streamlining can be enabled by automation. Automating serves the
following purposes:
● Eliminates paper clutter, thereby reducing processing time and error rates
● Links POs and invoices with electronics payments, which presents the full
picture of the accounts payable cycle
● Helps better vendor management & prevent vendor fraud
● Enables hassle-free three-way matching
● Allows integration of the Accounts Payable process with other core
business systems such as ERP and CRM

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Streamlining the Account Payable Cycle
Cont
● Allows setting up of multiple checkpoints in the accounting payable cycle
to avoid overspending or unnecessary purchases
● Warnings and alarms can be set when discrepancies are detected at any
stage of the accounts payable workflow
● Allows for setting up payment deadlines
● Enables generation of periodic reports to understand the spending
patterns of the company and prepare for audits and taxation

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Automating the AP Management
Process
Today, the digital Accounts Payable Process includes invoice data capture, coding
invoices with the correct account and cost center, approving invoices, matching
invoices to purchase orders, and posting them for payments.
A variety of accounts payable workflow software use features such as Optical
character recognition (OCR and intelligent data capture (IDC to automatically
capture key bits of data such as the PO number, amount and date.
More recently, all accounting tasks, including the Accounts Payable, are being
automated using AI-based technologies.

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Learn more about The
Accounts Payable Process:
https://nanonets.com/blog/accounts-payab
le-process/