"Accounts payable" (AP) is a term that refers to the money that a person or business must pay to its creditors within a certain period of time. It is the unpaid invoices, bills or statements for goods or services rendered by outside contractors, vendors or suppliers. These debts often must be paid — either partially or in full — each month. When someone pays his or her monthly electricity, telephone, cable television and Internet service provider bills, for example, he or she is paying off his or her accounts payable obligations. The term "accounts payable" also is the term that is used to refer to the unit within an organization's accounting department that manages these payments.
The accounts payable unit in an organization often oversees a variety of tasks. These might include authorizing purchase orders, collecting credit card receipts, organizing account withdrawals, keeping the general ledger and auditing expense reports. Other accounting transactions that an organization's accounting department might manage include accounts receivable (AR), which focuses on the billing of customers, and the organization's payroll, which focuses on paying employees.
Each business transaction has specific terms and conditions, including those that concern the payment for a good or service. Some transactions require payment upon receipt, which means that compensation is due immediately after the good is delivered or the service is rendered. Others might have 10-day, 30-day, 90-day or other time frames during which payment is expected. The use of credit lines, which allow the customer to make regular payments toward outstanding balances while continuing to receive goods or services, also is a standard practice. The accounts payable administrator must keep track of all terms and conditions and follow them accordingly.
If an organization does not satisfy its accounts payable obligations, it is considered to be in default. This can harm the organization's credit rating and could ultimately lead to bankruptcy. The same is true for a person who does not pay his or her bills. When an organization or person is in default, the party that is owed money usually will end delivery of all goods and services and could pursue legal avenues to receive payment or the return of goods that had been delivered.
Duties of Administrators and Employees
The job of the accounts payable administrator in an organization is a serious responsibility. Paying bills on time and according to the required terms and conditions can affect the organization's credit ratings and business relationships. Someone who works in accounts payable should be organized and attentive to details. It is often necessary to answer questions from vendors or coworkers in other parts of the organization, so good communications skills are helpful. Many people who do not work in accounting find the procedures and requirements complicated and confusing, so the ability to explain these clearly and patiently can be very useful.