What is accounts payable?
Accounts payable refers to the debts an organization owes vendors and suppliers that have provided goods or services not yet paid for. These charges are listed on the company’s balance sheet as current liabilities, which must be paid off within a certain time frame so the business avoids default.
The accounts payable process is a critical part of running a business to help ensure products arrive when needed, vital services are uninterrupted, payments are made on time and relationships are maintained with important distributors. Read on to learn more about the accounts payable process and its impact on your business.
What you’ll learn:
- Accounts payable expenses can include materials and supplies, leasing costs, equipment and more.
- The accounts payable process involves receiving and reviewing a vendor invoice, processing it, scheduling the payment and keeping updated payment records.
- Fraud risk, slow processing times and data entry errors are a few of the challenges of the accounts payable process.
- Automating accounts payable can lead to many benefits for the business, such as cost savings, improved efficiency and more.
What is the process of accounts payable?
The accounts payable process typically involves the following:
- A company purchases products or services.
- The order is fulfilled, and the products or services are received.
- The accounts payable are processed, and an invoice is provided to the buyer.
- The buyer provides payment by the due date.
- The accounts payable records are resolved.
What’s key during the accounts payable process is that businesses are able to receive the products or services they need prior to payment. This can support:
- Strong vendor relationships: If a vendor knows your business has a track record of always paying on time, they may be more likely to continue providing you with goods and services in a timely manner. They may also offer additional perks, such as discounts for being a valued customer.
- Better cash flow: By receiving goods or services prior to payment, businesses can pay when it makes the most sense for them—as long as it’s by the agreed-upon due date. This can free up cash flow to support business operations and growth.
Examples of accounts payable expenses
Accounts payable expenses include business purchases and those made from a vendor or supplier using credit. Examples are:
- Materials and supplies
- Equipment
- Transportation
- Packaging and shipping
- Software
- Labor
- Outsourcing needs
- Business travel
- Leasing
- Licensing
- Utilities
What is accounts payable automation?
When looking to better understand accounts payable, you’ll likely come across accounts payable automation, or AP automation. This involves software that takes out most of the manual work involved with processing payments. This can cut out a significant amount of costs, time and potential for human error during business operations.
Capital One offers a solution to managing vendor payments with its Accounts Payable tool. By connecting your Capital One Business account to the tool, you can view, schedule and manage payments while accessing an array of benefits to improve efficiency. Plus, you may be able to earn rewards for payments you’re already making to run your business.
Benefits of accounts payable automation
If your business decides to leverage accounts payable automation, you could benefit from:
- Improved accuracy: Accounts payable processes can help you create and maintain accurate recordkeeping for all purchases and payments. This is especially the case for automated accounts payable to avoid manual entry errors.
- Time and cost savings: Automating the accounts payable process can help businesses save time and money spent on resources, training and other payment processing costs.
- System integration: Automated systems often allow you to integrate your accounts payable with other software for seamless integration of your financial tools.
- Enhanced fraud protection: Accounts payable automation often includes software and tools that increase security, reducing issues like check fraud and other risks to the company’s financial information.
Accounts payable FAQ
Here are answers to some frequently asked questions about accounts payable.
What’s the difference between accounts payable and accounts receivable?
Accounts receivable is the money a business is owed, usually from customers. Accounts payable is the amount of debt the business owes to vendors or suppliers.
Are accounts payable business expenses?
Accounts payables are current liabilities on the business’s balance sheet. So they’re different from typical expenses, which are found on the organization’s income statement.
How do accounts payable impact cash flow?
When your business makes a purchase, there’s an increase in accounts payable and positive cash flow because your company hasn’t made a payment yet. Payment of accounts payable leads to a decrease in accounts payable and negative cash flow because money has left the business to complete the purchase.
Key takeaways: Accounts payable
Accounts payable plays a key role in a business’s overall financial health. It helps ensure that invoices are paid accurately and on time while strengthening vendor relationships. While the accounts payable process can be slow, automating accounts payable can help increase efficiency, reduce costs and decrease some security risks.
If your business needs a tool to manage, track and make all your vendor payments, check out Accounts Payable from Capital One and connect your eligible Capital One business card. Accounts Payable offers a flexible and convenient solution to automate and simplify your vendor payments. Plus, you’ll earn future cash-back and travel rewards, even with vendors that don’t accept credit cards.
