Accounts payable (AP) is money owed by a business to its suppliers shown as a liability on a companys balance sheet. It is distinct from notes payable liabilities, which are debts created by formal legal instrument documents. An accounts payable departments main responsibility is to process and review transactions between the company and its suppliers and to make sure that all outstanding invoices from their suppliers are approved, processed, and paid. Processing an invoice includes recording important data from the invoice and inputting it into the companys financial, or bookkeeping, system. After this is accomplished, the invoices must go through the companys respective business process in order to be paid.
What does Accounts Payable do?
Key functions of accounts payable
Working in an accounts payable department is similar to working as a bookkeeper or even an accountant. An accounts payable specialist or clerk could also be an accounting clerk. Those in this role perform many of the same functions as a junior accountant, including:
Producing financial records
Creating, managing and producing financial records is one of the main functions of an accounts payable professional. These records are vital to the financial health of the business, as well as for tracking all cash flow and payments to vendors and suppliers. If the business faces an audit or needs to produce proof of making a payment, it will rely on these financial records. The executive team or board of the company could review these records as they monitor its success.
Managing the financial transactions of a business is also an important function of the accounts payable department. When a business makes payments on time, they can continue to maintain good relationships with vendors and suppliers. Recording transactions properly ensures the company has a complete file of payments and can make accurate projections.
Tracking expenses and income
In many businesses, the accounts payable department keeps careful track of upcoming expenses in relation to the projected income. Managing any projected expenses is important as it allows the accountants and other financial professionals to make sure the business has enough income to pay its debts while maintaining its financial health.
Checking numbers for accuracy
Accounts payable professionals must also make sure that all the numbers in the financial records are accurate and correct. Keeping a detailed record with exact numbers can help create more accurate reports for review. Many accounts payable clerks spend at least a portion of their work time reviewing numbers for accuracy.
If a business faces an audit, the accounts payable department may work with the IRS or other individuals involved to provide the necessary records and information. They may need to answer detailed questions and give access to all records requested.
What is accounts payable?
Accounts payable is a department of a business that makes all payments owed by the company to its vendors, suppliers and other creditors. Some accounts payable professionals work within an accounting department in smaller businesses. When a company receives goods from one of its vendors, that vendor often has payment terms that require the cost to be paid within a certain period, generally within 30, 60 or 90 days. Upon receiving an invoice or bill, accounts payable professionals debit the total from the company’s balance sheet and issue payment.
The balance sheet is a document used by an accounts payable department to manage the total of all outstanding amounts owed to the company’s creditors. When creating monthly cash flow statements, the accounts payable department uses the increases and decreases from the previous period. To ensure the business has sufficient cash flow for its necessary expenses, the accounts payable process may involve paying outstanding bills just before they are due.
Common skills needed to work in accounts payable
Accounts payable employees typically need a certain set of skills to excel in this career path:
Attention to detail
An accounts payable clerk should be able to keep track of all financial transactions. They should have excellent attention to detail to avoid mistakes and monitor potential errors in calculations and records.
Strong analytical skills are important as those working in accounts payable often look at complex financial documents and records for hours at a time. These skills are also important when reviewing records for potential disparities and looking for areas in which the business could reduce its costs and improve its cash flow.
Although most accounts payable professionals rely on software programs to track and monitor invoices and line items, they must still be able to perform basic math functions. When reviewing the records for accuracy and managing errors, an accounts payable clerk may need to add or subtract by hand to ensure the numbers are correct.
Computer skills are important in an accounts payable position as these professionals work with various types of software to manage the general ledger, issue payments, track invoices and produce financial records. The software programs used often change as the needs of the business change, so being able to adapt to technological changes and updates is also an essential skill.
Certain times of the year can be stressful for an accounts payable department, including the end of the fiscal year and tax season. Staying organized is important when managing financial records as accounts payable clerks need to be able to find what they need, right when they need it.
When working with clients, executives or fellow accounting professionals, accounts payable employees should be able to listen, respond and request items in a businesslike manner. The ability to communicate in person, over the phone and via email can help an accounts payable professional receive the correct information in a reasonable amount of time while maintaining positive connections with coworkers.
How to get a job in accounts payable
If you want to pursue a career in accounts payable, here are some steps to follow:
Accounts payable job opportunities
Depending on the size of a company and its needs, it could employ a single accounts payable professional or may have a full department of professionals. Here are some of the most common positions in this area:
Primary duties: Developing and using systems to account for financial transactions, balancing accounts, verifying and allocating transactions and managing the general ledger for a business.
Primary duties: Providing financial and clerical support to a business, making payments to vendors, suppliers and other creditors, verifying and reconciling invoices and managing the general ledger to ensure proper cash flow.
Primary duties: Senior accounts payable specialists oversee accounts payable records and transactions. They may help manage the department and train new accounts payable clerks.
Primary duties: These professionals summarize the current financial status of a business by collecting and managing information about payments being made and income to the company, recommending financial policies and procedures, substantiating financial transactions, auditing records, and preparing profit-and-loss statements, balance sheets and other necessary reports.