Accounts Payable (AP) refer to the money a company owes its suppliers for goods and services that have been provided and for which the supplier has submitted an invoice. It is also the name of the team responsible for all outstanding money a business owes to its suppliers.
Although it may look like a fairly straightforward function to the untrained eye, accounts payable is a very demanding area of business. In fact, it consists of a series of sophisticated operations requiring high levels of efficiency and attention to detail.
Namely, the department is in charge of accurately tracking debts to suppliers as well as ensuring payments are approved and processed in a timely fashion. This information is then used to produce an up-to-date balance sheet.
The Role of the AP Department Within the Company
Because of its pivotal role in organizing the company’s short-term liabilities, the AP department takes center stage when it comes to entertaining relationships with vendors and suppliers.
Another important responsibility, the balance sheet, can also be seen as a reflection of the company’s financial strength. Maintaining accurate records, meeting payment deadlines, and ensuring no invoice or bill is lost in the system are all functions with a direct impact on the organization’s return of investment, relationship with suppliers or vendors, and overall brand reputation. This alone is proof enough that the accounts payable department is at least partially responsible for the company’s financial future.
What Are the Functions of the AP Department?
The AP landscape of an organization will depend on the company’s size, scope, and objectives. On a high level, the function of the Accounts Payable department will cover these functions regardless of enterprise status:
- Invoice reviewing & recording: Organizing and prioritizing invoices, solving any misunderstandings with suppliers, reviewing statements
- Invoice approval: Arranging third-party approval, setting up a timeline for payment, recording any issue
- Payment remission: Payment review, payment coding
- Invoice & payment report: Tracking payments and issue reports
Moreover, the AP department will also be in charge of ensuring the relationship with suppliers continues to run smoothly by:
- Helping providers to be seamless inserted in the system and keeping up-to-date data individual accounts
- Collecting W-9 forms
- Carrying out communication with vendors and addressing inquiries
- Ensuring invoices are not lost in the system and payments to vendors are processed up to date
How to Best Structure the AP Department?
As a highly critical area of business, the AP department needs to maintain a delicate structure to work efficiently.
In order to protect the company from the risk of fraud, the best course of action is to separate duties inside and out of the department structure. Moreover, cash flow can be improved by assigning responsibilities and roles within an automated eco-system. This saves employee time by sparing them the task of carrying out manual operations, entertaining back-and-forth messaging with vendors, and dealing with outdated workflow issues.
Streamlining vendor payouts is the single most important thing an organization can do to make the best out of its AP department. There are a few steps that can make this process easier:
- Documenting the journey: Keeping immaculate record of all vendor transactions is paramount. From purchase orders to tax information, all relevant vendor information should be kept in a neat file and easy to pull on a per-need basis.
- Keeping records: Recording all accounts payable is also very important. The minute a new invoice is received, it should be entered into the system. Once processed, a time stamp should be included.
- Verifying invoice accuracy: Errors happen. Making sure the price and name of the product/service provided match prior to authorizing payment can spare you an awful headache down the line and promptly help you solve any discrepancies that may occur. This will also be appreciated by your vendors as they will not have to deal with time-consuming back-and-forth communication in regards to the mistaken payment.
- Fragmenting functions: Dividing the operational duties among employees will make sure no one person gets access to more information than they strictly need. This, in turn, will minimize risk of fraud.
- Leveraging electronic payments: From fintech to wire transfers and ACH, electronic payments enhance the security threshold and lower fees, in turn making it a great investment for the AP department. International payments can also benefit from discounted transaction fees.
- Supporting a paperless work environment: By the same token, digitalizing most if not all processes will help you maintain high standards of security and facilitate the automation of time-sensitive and repetitive operations. As a bonus side effect, a paperless work environment does its part to be green by reducing waste.
How to Run Efficiently an AP Department Using Accounts Payable Automation Software
Organizations can benefit from leveraging automation for their AP department needs. In a highly competitive world that values time efficiency and seamless communication, responding to the ever-evolving needs of the market can make or break the success of your enterprise.
For this reason, more companies are leaving behind their manual processes in favor of AP automation software that offers two main benefits time-saving and cost-saving that makes AP department run more smoothly.
When leveraged carefully, AP automation software can:
- Simplify the invoice receipt process: Most invoices are sent electronically as an e-mail attachment, It is not uncommon for them to be lost in the company inbox. This, of course, turns the relatively straightforward act of finding an invoice into an endless chore. AP automation software saves time by providing a dashboard that gives immediate and intuitive access to each and every one of your accounts.
- Maintain outstanding relationships with vendors: Along with simplifying and minimizing manual operations, keeping separate account files for every vendor helps ensure everything is in order, important documentation can be pulled effortlessly, and payments are always made on time. This, in turn, will result in strengthened relationships with suppliers.
- Increase visibility into company expenditure: Linking all relevant account information will inevitably involve the tracking of financial movements between the company and its vendors. This way, the company’s cash flow can be monitored at all times.
- Streamlining the approval process: Another advantage of leveraging dashboards for all Accounts Payable (AP) department activities is it speeds up the approval process. Moreover, payments are not made out to the vendors until after all invoices have been reviewed and gone through all the stages of approval. Since preventing mistaken payments is more effective than reversing charges, gaining control over the approval process is bound to save labor times as well as spare any fees associated with payment.
The Bottom Line
A healthy accounts payable department is at the core of a functioning business infrastructure. Maintaining outstanding levels of communication with vendors and ensuring all payments are handled securely and efficiently help your business lower costs and exceed ROI objectives.