The term accounts payable comes from financial accounting and describes that sub-area of accounting that deals with the settlement of services by vendors – i.e. suppliers or service providers who work for a company. Accounts payable is opposed to accounts receivable , which records and processes the services of a company for its customers or other companies.
What is Accounts Payable?
Accounts payable is closely linked to purchasing within the company; it has the necessary overview of external suppliers and service providers, their range of services and order processing methods. In addition to the actual accounting tasks, the accounts payable department also deals with other aspects related to the administration of accounts payable and incoming invoices. For example, processing incoming mail, comparing offers, managing the GR / IR clearing account, dunning and recording travel expense reports.
Accounts Payable Tasks
One of the most important tasks of accounts payable is the processing of invoices that vendors issue to the company: the so-called vendor invoices or incoming invoices . Core tasks are further:
- Vendor master record maintenance,
- Accounts payable invoice verification and account assignment ,
- Entry of the incoming invoice on the credit side,
- Management of open items ,
- Induction of payment as well as
- Archiving of incoming invoices.
Areas of Accounts Payable: What do the following terms mean?
Vendor master record maintenance:
The vendor master record maintenance includes the entry and maintenance of the data of those vendors with whom a company maintains regular and permanent business relationships. Usually this is a database integrated in an ERP system (Enterprise Resource Planning System). In addition to the master data such as name, address, field of activity and type of company, the system also records contact details, bank details and any other useful information about the business partner. The system assigns each vendor its own identification number ( vendor number). The accounts payable database can be used, for example, to record discounts granted and pay open incoming invoices. It facilitates and accelerates business relationships between two companies.
Accounts payable invoice verification and account assignment:
These two tasks of accounts payable include the recording and computational verification of the information in the incoming invoice , the comparison with the order data, the approval of the payment and the posting of the corresponding outgoing payment. Depending on the type of line or delivery provided, a check is made to determine whether delivery quantities, working hours, etc. have been billed correctly, whether the goods delivered are undamaged and correspond to the order in terms of both quality and quantity, and whether goods receipt postings have been correctly confirmed. This process is also referred to as “factual invoice verification”. In addition to the factual check, the accounts payable staff must also carry out a “formal invoice check”. They check the incoming invoices for any formal errors such as missing mandatory information .
The verification of necessary payment approvals takes place for all transactions for which this is necessary. Since there can be considerable differences from company to company, the verification of payment approvals is usually automated.
Entry of the vendor invoice:
The first step in processing incoming invoices is entering them. This takes place in three steps:
- Assign incoming invoices to the identification number of the respective vendor
- Process the invoice amount separately from the VAT
- assign the invoice to a business transaction.
Most companies use ERP systems again to record incoming invoices on the accounts payable. In this way, open receivables can be easily displayed as a liability in the assigned vendor account. In the booking record, this process is then recorded as a total for the vendor on the credit side, while the invoice amount is broken down into the corresponding proportions of the invoice amount and VAT on the debit side.
Management of open items:
First of all, they are sorted according to the due date. The accounts payable staff then carry out a systematic review of the existing payment obligations. Above all, it checks whether vendor items have been entered twice and whether old items need to be processed. Since the simultaneous maturity of several and / or very high liabilities can lead to liquidity problems under certain circumstances , this sub-area of accounts payable plays an important role in short-term liquidity planning. It can be used to temporarily block and unblock payments, adjust due dates or agree deferrals and installment payments. The management of open items is also an important internal control tool for financial planning.