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Accounts Payable: Your Quick Guide

Accounts Payable: Your Quick Guide


Accounts payable is a business record of amounts owed to other entities for goods and services already received or utilized.  Account payable services are critical for most companies as it expedites the delivery of items while waiting for payment options to process.  Most Americans receive accounts payable service every day, usually in the form of utilities where a bill is sent for usage after their usage of the good has been determined and quantified.

How does accounts payable work for businesses?
The key to accounts payable is the cash conversion cycle that determines how long it will take for the business entity to receive payment for products and services.  A company that suffers from poor cash flow will lose flexibility in inventory management, paying and maintaining relationships with suppliers and delivering more products to other potential clients.  To ensure the continued flow of cash, organized accounts payable is necessary to ensure that accounts are settled with suppliers through the expedited payment of invoices.  Accounts payable will work in conjunction with accounts receivable to ensure that company cash flow remains stable and flexible and that excessive debts are not outstanding or uncollected.
Among the important functions of accounts payable is invoice processing.  After the accounts payable department determines that the invoice is legitimate and matches a purchase order, it is forwarded to the employee in charge of invoices of the same type.  In large entities, this may be an entire department in accounts payable devoted to sorting invoices of specific types or vendors.  If there is no verification system in place to determine if the invoice is legitimate, then the invoice is typically passed to the person that orders the goods or service who must then match the item to a purchase order.  After this is fulfilled, the invoice is returned to accounts payable, where payment to the vendor will be arranged, usually through a prior approved system.

What are the responsibilities of accounts payable personnel?
In especially large enterprises, controls to prevent fraud are often lacking.  As such, many of these entities may be bilked by vendors or subject to other fraudulent actions.  Accounts payable personnel but by able to prevent accidental reimbursement for expenses submitted by employees and vendors alike.  In other cases, accounts payable personnel must also be aware of fraudulent invoices or invoice-like documents designed to trick the commercial entities into reimbursing expenses that do not exist.  For this reason, even the most modern accounts payable automation systems will require human supervision and investigation to prevent double payment, exploitation or fraudulent payments.

How do business entities use accounts payable software?
Accounts payable software automates some functions of typical accounts payable work by organizing items such as invoices, packing slips and purchase orders to ensure each item is accounted for and the debt is paid.  The accounts payable software organizes these accounts, which minimizes the potential for lost documents or other human errors.  Modern accounts payable software can scan documents and recognize words and phrases that will then match the invoice to a purchase order.  This saves on time as it prevents the manual scanning of documents and the need to forward the invoice to the purchaser for verification.