Accounts Payable is the obligation that a business owes to its creditors for buying goods or services. That is, it is the unpaid invoices, bills or statements for goods or services rendered by outside contractors, vendors or suppliers. Accounts payable are sometimes referred to as “payables.” When you pay your monthly utility, phone, cable TV bills, or internet service provider (ISP) bills, you are in a sense paying off your accounts payable obligations.
Accounts payable is also used to refer to the unit within an organization’s accounting department that manages these payments. The accounts payable unit often oversees a variety of tasking which may include authorizing purchase orders, collecting credit card receipts, organizing account withdrawals, and keeping the general ledger, and auditing expense reports. Other accounting transactions that an organization’s accounting department may manage includes accounts receivable, which focuses on the billing of customers, and payroll, which focuses on paying the organization’s employees.
The job of the accounts payable administrator is a serious responsibility. Paying bills on time and according to the specific terms and conditions can effect company credit ratings and ultimately business relationships.
Each relationship has different terms and conditions in which payment for a service is expected. Some services require payment upon receipt, which means compensation is due immediately after the service is rendered. Others have 10, 30 or 90 day terms in which payment is accepted. Credit lines, where payment is due once a month, is also a standard practice as it grants the customer convenience of keeping outstanding balances. The accounts payable administrator must keep track of terms and conditions and follow them accordingly.