Accounts payable
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Accounts payable (AP) is money owed by a business to its suppliers shown as a liability on a company's
Overview
An accounts payable department is typically located within an organisation's finance function.[3]
An account payable is recorded in the Account Payable sub-ledger at the time an invoice is vouched for payment. Vouchered, or vouched, means that an invoice is approved for payment and has been recorded in the
In a business, there is usually a much broader range of services in the AP file, and
Commonly, a supplier will ship a product, issue an invoice, and collect payment later. This is a cash conversion cycle, or a period of time during which the supplier has already paid for raw materials but has not been paid in return by the final customer.
When the invoice is received by the purchaser, it is matched to the
Estimates from 2009 suggested that more than a billion business-to-business invoices were being processed each week, and 97% of these were still processed manually. The average cost to process and pay a supplier invoice was between $5 and $15, with 10% processed too late to be paid within discounting terms, and nearly 2% containing errors.[6]
In
Internal controls
A variety of checks against abuse are usually present to prevent embezzlement by accounts payable personnel. Separation of duties is a common control. In countries where cheques payment are common nearly all companies have a junior employee process and print a cheque and a senior employee review and sign the cheque. Often, the accounting software will limit each employee to performing only the functions assigned to them, so that there is no way any one employee – even the controller – can singlehandedly make a payment.
Some companies also separate the functions of adding new vendors to the master vendor file and entering vouchers. This makes it impossible for an employee to add themselves as a vendor and then write a cheque to themselves without colluding with another employee. The master vendor file is the repository of all significant information about the company's suppliers. It is the reference point for accounts payable when it comes to paying invoices.[7]
In addition, most companies require a second signature on cheques whose amount exceeds a specified threshold.
Accounts payable personnel must watch for fraudulent invoices. In the absence of a
In accounts payable, a simple mistake can cause a large overpayment. A common example involves duplicate invoices. [8] An invoice may be temporarily misplaced or still in the approval status when the vendors calls to inquire into its payment status. After the AP staff member looks it up and finds it has not been paid, the vendor sends a duplicate invoice; meanwhile the original invoice shows up and gets paid. Then the duplicate invoice arrives and inadvertently gets paid as well, perhaps under a slightly different invoice.
Audits of accounts payable
Auditors often focus on the existence of approved invoices, expense reports, and other supporting documentation to support checks that were cut. The presence of a confirmation or statement from the supplier is reasonable proof of the existence of the account. It is not uncommon for some of this documentation to be lost or misfiled by the time the audit rolls around. An auditor may decide to expand the sample size in such situations.
Auditors typically prepare an aging structure of accounts payable for a better understanding of outstanding debts over certain periods (30, 60, 90 days, etc.). Such structures are helpful in the correct presentation of the balance sheet as of fiscal year end.[9]
Automation
Many companies are involved in work to streamline or automate the business process of their accounts payable departments. This process is straightforward but can become very cumbersome, especially if the company has a very large number of invoices. This problem is compounded when invoices that require processing are on paper. This can lead to lost invoices, human error during data entry, and invoice duplicates. These and other problems lead to a high cost per invoice metric. The goal of automating the accounts payable department is to streamline this invoicing process, eliminate potential human error, and lower the cost per invoice.[10]
Some of the most common AP automation solutions include
Enterprise resource planning systems typically use software to provide integrated business process management services to enterprises.[13]
History
Since the mid-1967s companies have begun to establish data links between their trading partners to transfer documents, such as invoices and purchase orders. Inspired by the idea of a paperless office and more reliable transfer of data, they developed the first
This remained the main way to exchange transactional data between trading partners for nearly 3 decades. The 1990s came with advances in internet technology. Companies began to appear offering more robust user interface web applications with functions that catered to both supplier and customer. These new web-based applications allowed for online submission of individual invoices as well as EDI file uploads. Along with other methods of file uploads including CSV and XML. These services allow suppliers to present invoices to their customers for matching and approval via a user-friendly web application. Suppliers can also see a history of all the invoices they submitted to their customer without having direct access to the customers' systems. This is because all the transactional information is stored in the data centers of the third-party company that provides the invoicing web app. This proprietary information can be regulated by the customer in order to control how much transactional information the vendor is allowed to see. (For example, payment dates, or check information).[15]
As companies advance into the digital era, more and more are switching to electronic invoicing services to automate their accounts payable departments. Some even believe it to be an industry standard in the near future. According to a report done by the GXS team in 2013, Europe is adopting government legislation encouraging businesses to adopt electronic invoicing practices. The United States has no such legislation yet but does recognize the value of this technology. The US Treasury estimated that implementing e-invoicing across the entire federal government would reduce cost by 50% and save $450 million annually.[16]
With the increasing availability of robotic solutions, businesses are driving process improvement in AP even further. By applying end-to-end
See also
- List of accounting topics
- Accounts receivable
- Payroll
- Invoice reader
- Creditor Reference
References
- ISBN 978-1439037805. Retrieved 2013-11-29.
- ^ Accounting Tools (2013), Accounts Payable Controls Archived 2013-06-13 at the Wayback Machine, accessed 25 June 2021
- ^ Detwiler, B., What is Accounts Payable? The process, business objectives and KPIs that matter, Celonis, accessed 23 April 2024
- ISBN 978-0-471-78589-7.
- ^ "The Invoice Approval Process". AccountingTools. Retrieved 2013-11-29.
- ^ Parata, L., Accounts Payable: Critical Issues and Solutions, CFO Innovation, published 25 October 2009, accessed 26 June 2021
- ISBN 0-471-78588-1.
- ^ Bragg, Steven (2023-09-02). "Duplicate payment definition". AccountingTools. Retrieved 2023-11-26.
- ISBN 978-1-4610-3996-9.
- ^ a b The Aberdeen Group: Scott Pezza, w. j. (2010, October). The E-payables Solution Selection Report: A Buyer's Guide to Accounts Payable optimization, page 4. Retrieved from www.adp.com: "Archived copy" (PDF). Archived from the original (PDF) on 2014-01-23. Retrieved 2013-06-14.
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: CS1 maint: archived copy as title (link) - ^ Seeburger (2007), "Solutions for Automating Invoice Processing"
- ^ tieto. (2009). The future of e-invoicing, Pg. 5. Retrieved from digitdoc: "Archived copy" (PDF). Archived from the original (PDF) on 2012-10-21. Retrieved 2013-06-17.
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: CS1 maint: archived copy as title (link) - ^ "A step-by-step scenario to AI-enabled Invoice Processing". NuAIg. 2021-10-22. Retrieved 2021-11-25.
- ^ Hill, M. G. (n.d.). A brief history of Electronic Data Interchange, pg 6. Retrieved from BizTalk Server 2000: A beginner's Guide: http://books.mcgraw-hill.com/downloads/products/0072190116/0072190116_ch01.pdf Archived 2014-03-09 at the Wayback Machine
- ^ GXS. (1997). A brief history. Retrieved from eInvoicing basics: http://www.einvoicingbasics.co.uk/what-is-e-invoicing/a-brief-history/
- ^ Bruno Koch, G. (2013, April). E-Invoicing/ E-Billing. Retrieved from GSX: http://www.gxs.co.uk/wp-content/uploads/billentis-2013-report.pdf
- ^ "Article : Robotic Process Automation in Accounts Payable – Tomorrow is Today". wns.com. Retrieved 2016-07-29.
- ^ "KPMG Strategic Visions On The Sourcing Market 2016". 2016-04-13.
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