Imagine trying to juggle dozens of bills, supplier invoices, and payment deadlines without a clear system. That’s where accounts payable (AP) comes in, keeping your company’s finances organized, efficient, and on track.
But what exactly goes into AP? And why does it matter?
Whether you’re in the thick of managing finances or just curious about its inner workings, let’s explore what’s included in accounts payable — and why each piece matters to your business.
Accounts payable is all about the money a business owes to its suppliers and vendors. But AP is a complex process that includes more than just outstanding bills. AP also includes:
Invoices are at the core of accounts payable. They act as a bill from your suppliers and document the purchases your business has made but not yet paid for.
When invoices arrive, the AP team checks them for accuracy, ensuring that the goods or services listed were received as ordered and that the prices match the agreed terms. If everything checks out, the invoice gets approved for payment.
A purchase order (PO) is another key piece of the accounts payable puzzle. A PO is a document issued by a company to a supplier that outlines the items to be purchased. POs also include details about quantities, prices, delivery dates, and payment terms. Businesses use POs to ensure that purchases are authorized before they happen, preventing unauthorized spending.
When an invoice arrives, the AP team matches it to the corresponding PO and confirms what was ordered matches what was received. This process — known as three-way matching — is used to make sure there are no discrepancies between the purchase order, the invoice, and the actual goods or services received.
Once an invoice is approved and matched to the correct PO, it needs to be paid. The AP team schedules and processes payments, ensuring they are made accurately and on time to maintain good relationships with suppliers and avoid late fees.
Payments are generally sent using your vendor’s preferred method, like checks, virtual cards, or ACH.
While smaller companies often manually make payments, growing or larger organizations rely on AP automation tools to make scheduling and approving payments faster and more efficient. Automating payments with a solution like Nimbello helps reduce delays, streamline workflows, and improve cash flow management.
Expense management generally involves employees making purchases on behalf of their company. In some cases, employees are given a company-issued credit card that uses money directly from a company account. Other times, employees use their own funds to purchase things like travel, meals, or supplies; they’ll then need to submit a reimbursement request.
AP teams are responsible for verifying and processing all employee expenses. While this can be time-consuming, AP automation software can make it easier to reconcile purchases or process reimbursements.
AP teams don’t just process payments — they’re also responsible for managing the relationships with the company’s vendors and suppliers. This includes keeping accurate records, like contact information, payment terms, and tax information, for every vendor used.
Vendor management also involves negotiating payment terms that benefit the company. Managing these terms well can create strong vendor relationships and potentially improve a company’s cash flow. Some vendors might offer early payment discounts, while others may allow extended payment periods.
Recordkeeping is an essential part of the AP process. This is key for accurate reporting and ensuring a clear view of the company’s liabilities and cash flow — and for reconciling finances at the end of month, quarter, or year.
Without an efficient AP process, reports can become unreliable. AP automation solutions simplify the reporting process by providing real-time visibility into all invoices, payments, and vendor activity.
Your business is responsible for maintaining compliance with things like tax laws, federal regulations and internal control policies. This includes managing tax withholdings for vendor payments, filing 1099 forms for independent contractors, and keeping track of any taxes owed.
Non-compliance can lead to penalties or other legal roadblocks. That’s why AP teams must work closely with accounting, finance, and operations teams to ensure all payments are correctly recorded and aligned with regulations.
Manually managing the accounts payable process can work when you’re just starting out, but can lead to problems as your company scales. Human error, processing delays, and inefficient workflows can lead to late payments, missed opportunities for discounts, and inaccurate financial reporting.
Automation streamlines the entire AP process by automatically managing the end-to-end AP process, from invoice capture, approval routing, and payment scheduling. This not only saves time but also reduces errors, improves vendor relationships, and gives you better control over cash flow. Plus, it provides real-time visibility into your company’s financial liabilities, so you can make more informed decisions.
At its core, AP involves managing vendor invoices, purchase orders, payments, expenses, vendor records, and compliance. While this may seem straightforward, it’s a complex process. That’s why automation is so important to the success of your operations.
By investing in the right AP automation solution, like Nimbello, you can improve efficiency, reduce costs, and gain better control over your finances. Whether you’re a small startup looking to grow or a large corporation with thousands of vendors, you can transform your AP operations with Nimbello — Learn more by scheduling a demo today!