Accounts Payable in Accounting

Accounts payable in accounting refers to the payment process for goods or services from a supplier. The specific accounting activity/entry is known as Accounts Payable or AP for short. It’s also a commonly used name to describe the department/division responsible for making the payments to suppliers and other creditors on behalf of the organization.

Accounts Payable in Accounting - Automate with Rillion

Understanding AP in accounting

As previously mentioned, accounts payable in accounting refers to debts that must be paid within a given time period.

A company’s accounts payable balance will appear on its balance sheet under the current liabilities section. It’s an important figure in the balance sheet, where if accounts payable increases over a prior period, the company is buying more goods and/or services on credit.

If the AP amount decreases the company is paying off its prior debts faster than it’s purchasing new items on credit.

Managing your business’s cash flow

AP accounting management is a critical part of managing your business’s cashflow.

For example, if the company wants/needs to increase its cash reserves, you can extend the time it takes to pay certain debts in AP.

However this delay in payment (but increase in cash reserves) needs to be carefully weighed against ongoing vendor relationships can affect credit reputation. It’s a good business practice to pay bills by their due dates.

Accounts payable vs. Trade payables

Although accounts payable and trade payables are at times used interchangeably, they refer to, albeit similar, but slightly different situations. Trade payables refer to all debts a company owes only for inventory-related goods. Accounts payable includes all short-term debts.

For example, if a restaurant owes money for food ingredients and drinks/beverages they are part of the inventory, and thus part of trade payables. Cleaning services or washing staff uniforms would fall into the accounts payable category. Both of these debts would fall under accounts payable, and most companies combine both under the accounts payable category.

Accounts payable vs. Accounts receivable

Accounts payable and accounts receivable are opposites. AP is the money your company owes your vendors, whereas AR is the money owed to you.

What’s the role of accounts payable in accounting?

AP departments are responsible for more than just paying incoming invoices. AP usually has its own department in an enterprise, while smaller businesses often combine both receivables and accounts payable as a function together. The role of the AP department ultimately depends on the size of the company and it fulfills at least three additional functions besides paying bills and invoices:

Large enterprises may have their AP department handle all their business travel expenses such as making advance airline, car rental, and/or hotel reservations.

AP accounting is often responsible for distributing internal payments – such as reimbursements – as well as administering petty cash, and controlling the distribution of sales tax exemption certificates.

Accounts payable departments can also be responsible for organizing and maintaining contact information for vendors and suppliers, as well as payment terms and other accounting information.

What is AP automation?

Processing incoming invoices and paying bills manually requires a considerable amount of time and is particularly costly.

Using Rillion’s AP automation software, you can improve inefficiencies, automate manual processes, and streamline the workflow throughout the whole accounts payable process:

When receiving an invoice, utilizing AI and capture automation, data is extracted with high accuracy using OCR from both paper and electronic invoices. This eliminates manual data entry, manual errors, and missed invoices.

Invoices are sent in an approval workflow to managers and supervisors.

An automated matching engine matches PO invoices to purchase orders and goods receipts. If the invoice and PO match, the invoice is sent directly to the ERP or accounting system for recording. If not, the invoices are automatically forwarded to the designated approvers/reviewers with a complete package to review including invoice, PO, goods receipt, and previous employee messages.

Fully matched and approved invoices are transferred to your ERP system for recording and payment – via seamless system integration.

Once paid, all invoice payment information from your ERP is transferred back to Rillion. The invoice is archived and remains available in the cloud for future searches, reports, and upcoming audits.

Don’t take our word for it

"Automated processing hassignificantly increased our overall efficiency, shortened payment cycles and helped to improve the manageability of transactions."

AP Supervisor | Landstar System Inc.

"With the Rillion implementation, Perryman’s vendor invoices are captured and validated automatically with a 95% accuracy rate. The invoices go to a queue, visible in the Rillion dashboard."

The Perryman Company |

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