What Is Accounts Payable? (Required Duties and Skills)
By Indeed Editorial Team
Updated January 21, 2023
Published September 7, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Various businesses often purchase large amounts of goods from trusted suppliers. As a result, they need effective account payable records to ensure they resolve all debts and maintain productive business relationships. Understanding what accounts payable is can help you decide if you want a career in that department. In this article, we answer the question, "What is accounts payable?" and we describe the accounts payable process, identify the duties of the accounts payable department and provide tips and a list of skills needed to work in this field.
What is accounts payable?
Accounts payable refers to the outstanding amounts businesses owe suppliers and vendors who deliver goods on credit. The term also refers to the department that receives invoices from vendors, compiles them, and processes their payments. In some businesses, accounts payable is a standalone department. Others merge the accounts payable and accounts receivable department, while others still have an accounting department that handles a company's accounts payable. Businesses often have agreements with vendors and suppliers to receive goods and make payments within a specific period.
For a business, the accounts payable is a liability as it's a monetary obligation. The accounts payable clerk usually maintains a double ledger for the business and supplier for greater accuracy. When the supplier sends an invoice, the accounts payable clerk records it as a liability for the company and an asset for the supplier. For example, suppose a manufacturing company received 50 tons of iron from a mining company, who sends an invoice of $10,000. The accounts payable clerk records $10,000 as a liability for the manufacturing company and an asset for the mining company.
What is the accounts payable process?
The accounts payable process refers to the steps involved in receiving and resolving vendor invoices. When a supplier sends an invoice, an accounts payable clerk inputs relevant information into the accounts payable system. Then the clerks make sure the information on the invoice is the same as that on the ledger accounts and purchase order.
The clerk receives the invoices and directs them to the appropriate authority for approval if the information is accurate. After receiving approval, the clerk schedules the payment on the company's invoice. Finally, the accounts payable clerk compiles all accounts payable and reflects the total on the balance sheet.
Duties of the accounts payable department
Here are some duties of an accounts payable department:
Producing financial reports
The accounts payable department is an essential part of a business's finances. Proper accounts payable processing and documentation are important for businesses to determine if they're in a loss or profit. The accounts payable department is responsible for compiling and organizing all invoices for record keeping. They also prepare financial reports detailing their department's activities for executives and other stakeholders. When a business wants to perform an audit, the auditors work with the accounts payable department to obtain records of transactions between the business and its suppliers or vendors. The accounts payable department ensures all records are accurate.
Building and maintaining relationships with suppliers
As the accounts payable department primarily deals with suppliers, their duties include maintaining positive professional relationships with them. For example, the accounts payable department sets up vendor or supplier profiles and ensures their information is accurate. This duty can involve occasional calls to the vendors to verify their details or request updates on any changes. The accounts payable department also responds to inquiries from vendors. Most importantly, they ensure that vendors receive payment promptly, fostering a good professional relationship.
The accounts payable department is responsible for receiving invoices from clients and processing their payments. Accounts payable personnel monitor and process payments from checks, bank transfers and EFT systems. They are also responsible for processing and paying recurring expenses. The accounts payable department compiles and maintains the manual check log for monthly or yearly account balancing. They also resolve any payment issues that suppliers or vendors report and initiate bank transfers and write checks on behalf of the company, subject to executive approval.
Assessing and recording invoices
The accounts payable department is responsible for receiving invoices from vendors and suppliers. After receiving the invoice, they confirm its authenticity and check for any discrepancies with their records. The accounts payable clerk then codes the invoices and organizes them in the system. Clerks usually organize invoices in order of priority or urgency. Ensuring that the information on the invoice corresponds with the purchase order is also one of the responsibilities of the accounts payable department. They also review vendor statements and notify relevant authorities of any unsatisfactory information regarding the condition or quality of the products.
Obtaining approval for payments
The accounts payable department is responsible for obtaining authorization from the appropriate authority. For transparency, most companies have structures where different officials approve and pay an invoice. Accounts payable clerks ensure they abide by company policies and maintain utmost transparency. They compile invoices in an organized manner and ensure they reach the relevant authorities on time. The accounts payable clerk can also be responsible for sending periodic reminders to ensure they receive authorization quickly. If there are any authorization issues, the accounts payable clerk documents it for future reference.
Tips for an effective accounts payable department
Here are some tips to help you function effectively in an accounts payable department:
Use accounts payable software
Accounts payable software allows you to process large amounts of transactions and invoices more accurately and in less time. Many financial experts consider accounts payable one of the most difficult roles, so introducing technology can make your work more effective. With more time available, you can review records to spot manual errors and resolve them.
Centralize company records
Keeping a central database of company records is essential for transparency and easing collaboration between departments. To be effective, ensure the accounts payable department inputs invoices and payment data immediately after receiving them. Also, ensure all entries into the database come with timelines for transparency and assist other financial processes.
The accounts department handles most of a company's funds, so it's important there's transparency. Having well-defined roles is essential to trace any errors or signs of fraud within the department. For example, as a manager, you can place different people in charge of reviewing invoices, seeking approval and processing payments to reduce the risk of fraud within the department. Segregating duties also encourages efficiency among personnel as each person can focus and specialize on their task.
Related: Defining Roles and Responsibilities
Incorporate electronic payment
Electronic payment systems allow your company to process and resolve payments faster. This can help foster a good relationship with your vendors and qualify you for special discounts or offers. Electronic payment systems also allow greater security in financial transactions, as the software automatically encrypts sensitive information. Electronic payment systems also allow you to process recurring minor expenses easily. Your organization can also benefit from the automatic and accurate record-keeping of these systems.
Review accounts thoroughly
The core responsibility of the accounts payable department is ensuring that all records are accurate. An effective accounts payable department needs an effective review system that every person is familiar with to prevent confusion. Ensure the accounts payable department reconciles company accounts daily by cross-checking the vendor's invoice with the purchase order and packing slip with physical goods. A thorough review process can help your organization spot and resolve errors or signs of fraud.
Skills you need in your accounts payable department
Here are some of the skills you need as an account payable clerk or manager:
Even small companies now incorporate accounts payable software and other technologies to aid their financial processes. To work in an accounts payable department, you need to be familiar with the use of relevant software. Accounts payable personnel also often have to prepare complex financial reports using spreadsheets or other computing software. You can develop technology skills by practising and taking online training.
Accounts payable personnel communicate with their colleagues, supervisors and the company's vendors. As they handle sensitive numbers, accounts payable personnel need to be precise with their communication. They need excellent writing and speaking skills to make inquiries, respond to inquiries and process requests via any channel.
Accounts payable personnel often have to handle large volumes of invoices and documents, depending on the firm's size. As a result, they need organizational skills to avoid making mistakes with sensitive files. Organization skills are also important for prioritizing and scheduling payments.
Attention to detail
One of the core responsibilities of the accounts payable department is reviewing invoices and other documents for any discrepancies. Accounts payable personnel look through many numbers daily and require focus and meticulousness to spot discrepancies. They also need attention to detail to spot and resolve any errors on their part.
While accounts payable software handles the bulk of the work, accounts payable personnel still need mathematical skills. Performing calculations and understanding formulas make it easier for accounts payable personnel to spot errors in documents. They also occasionally perform minor calculations by hand in the course of their duties.
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