Simplify Invoice and Payment Processing

What is Accounts Payable?

Accounts payable (AP) refers to an account within the general ledger that represents a company’s obligation to pay off a short-term debt to its creditors or suppliers/vendors.

From an accounting standpoint, AP is considered a form of cash, since they represent funds being borrowed from suppliers/vendors. When AP invoices are paid, this is obviously considered a use of cash. Given these cash flow considerations, suppliers/vendors tend to push for shorter payment terms, while creditors/customers want to lengthen the payment terms. When a business is short on cash, management frequently mandates that the payment of AP be delayed, since this essentially represents a no-interest loan from their suppliers/vendors. Within an accounting system, when a purchasing company approves an invoice, they will record the total amount of the invoice in the general ledger as a credit to the AP account, with an equivalent debit in the appropriate expense account. Once payment has been issued for the invoice, the total amount will be debited from AP, with a credit made to cash.

Is Procure to Pay the Same as Accounts Payable?​

Yes, the Accounts Payable cycle is also referred to as the Procure to Pay cycle. This cycle encompasses the process which takes place when a company purchases, receives, and pays for goods and services. The activities that make up the procure-to-pay process range from identifying the initial need for the procurement process for goods or services, to the final steps of approving invoices and paying suppliers/vendors. The process of the procure to pay cycle includes:

Need Identification Identifying the need for specific goods and services and chalking out a budget for the same. Sourcing Goods This may include researching vendors, looking up products and negotiating prices. Companies may source products from an approved catalog, or by issuing a request for quotation (RFQ) inviting vendors to outline details of the products or services they can provide and the cost of the same. Purchase Requisition When a vendor has been selected, the buyer can formalize approval for the purchase by moving into the purchase requisitioning stage. This is done by creating and approving a purchase requisition order, which is an internal document used when a purchase needs to be made. Issuing Purchase Orders A purchase order (PO) is a document issued by a buyer when placing an order, which will include details such as the type, price, and quantity of the products or services being purchased. This will be sent to the supplier. It is important to note that not every organization will create requisition orders and PO’s as part of their procure to pay process. Receiving Orders This includes receiving goods, or services, from the supplier, checking them against the details outlined in the purchase order, identifying any damage that may have occurred during shipment, preparing a receipt, and entering receiving details into the relevant payment systems. Receiving Supplier Invoices After the good or services have been delivered, the supplier will provide an invoice outlining the amount the buyer needs to pay and the date by which the invoice needs to be settled. For organizations that create PO’s, invoice matching will need to be carried out with the purchase order(s) and entered into the relevant payment systems. Ideally, if invoices can be received electronically, they can/should be directly integrated into relevant payment systems for processing. Supplier Invoice Payment The next step of the procure to pay process includes paying supplier invoices within the agreed payment terms and accounting for the transactions in the organization’s general ledger system. As part of this process, the purchasing company will need to check that vendor details are up to date in their systems, as well as taking steps to avoid the risk of procure to pay fraud. AP Reporting and Process Review After the supplier has been paid, the organization may review various reports about their total outstanding amounts, payment discounts availed and other key procure to pay metrics to be tracked on an ongoing basis. Additionally, the organization should regularly review their procure to pay process to identify any opportunities for improvement in the future to ensure attainment of organizational goals as related to the procure to pay metrics.

What Is the Process of Accounts Payable Outsourcing?