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What Does Accounts Payable Mean? What is AP Automation?

What does Accounts Payable (AP) Mean? The phrase Accounts Payable means the money a business owes to its vendors for supplies, utilities and other goods and services. Accounts Payable refers to short term debts. It doesn't include notes payable liabilities which include long-term debts like business loans for startup costs, equipment financing and more.

The phrase "accounts payable" is often used in reference to the team in a business that processes payments to vendors. AP processing is part of the procure-to-pay cycle which includes creating and approving purchase orders, and placing orders with vendors, receipt of orders and invoices, approval and payment of invoices.

What is Account Payable (AP) Automation? The AP process includes intaking vendor invoices, getting approval signatures for each invoice, entering invoices into accounting data and finally paying the vendor. AP automation streamlines this process with technology for paperless processing, workflows to streamline approvals, automatic reminders, electronic payment and automatic posting to accounting ledgers.

Further Reading: Understanding Invoice Processing Automation

what is accounts payable

Why Automate Accounts Payable?

The simple reason why companies automate AP processes is that it saves time and money. We can expand on this answer by first listing the challenges commonly faced by AP departments and then we will see how automation helps.

Challenges of the AP Process

Because the AP process involves multiple steps, traditional processing requires a lot of manual labor, from redundant data entry across multiple systems, to handwriting checks and stuffing envelopes. Because of this labor intensive process, traditional AP processing often results in the following problems:

  • Data entry errors
  • Lost or forgotten invoices
  • Late fees and penalties
  • Sluggish or failed audits
  • Lack of reporting insight
  • Fraud
  • Impact on efficiency across accounting functions

How Accounts Payable (AP) Automation Fixes these Problems

With the right software for AP automation, many of these problems can be quickly addressed and eliminated because automation reduces or eliminates manual processes. Here are some of the benefits of AP automation that will help companies overcome the challenges above.

  • Fewer errors
  • Automatic reminders so invoices are never forgotten
  • Faster processing
  • More traceability and simplified reporting
  • Data management and integration with accounting for greater insight
  • Built-in fraud prevention tools
  • Greater efficiency to help streamline general accounting practices like month-end close

 

How to Automate Accounts Payable:

Companies can create proprietary solutions for AP workflows. They can develop customizations for their Enterprise Resource Planning solution or they can procure an accounts payable automation software solution.

Investing in an AP automation software tool is the most cost effective and most reliable way to automate AP. Depending on their accounting solution, businesses can choose the best AP software for their needs and their existing IT infrastructure.

 

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