Four Functions of AP

What is Accounts Payable? What does Accounts Payable do? These are important questions for business owners to consider and understand. Accounts Payable is a department that handles vendor bills, ensuring that payments have been made in a timely manner and are recorded correctly, and keeps track of what is owed. Accounts payable may seem like a department that just pays your bills, but in addition to making sure your business bills are paid, the accounts payable department also reviews your bank transactions, builds vendor relationships and so much more. Though the list of department responsibilities is lengthy, here are the top four most important functions and the significance of each.

1. Cash Flow – Depending on the size of your business will determine how frequently this needs to be monitored. In general, the AP Department will manage your cash flow to make sure you have enough to pay your bills, pay your employees and to pay future bills, such as, insurance or property taxes.
2. Matching Invoices and Storing Them – As payments are made, they will be matched to the corresponding invoice. Ensuring records are matched properly is vital as these transactions can be used as an audit trail in the case that the AP department needs receipts or even supporting documents, such as, purchase requests or agreements.
3. Reconciling Bank Statements – Every week, the AP department will pull in your banking transactions, and once a month, they will reconcile the account. Reconciling the account helps break down any outstanding deposits or transactions and allows them to review any transactions that could be fraudulent and need to be researched.
4. Processing Payments – Depending on when your business bills need to be paid, the AP department will write a check, process an online payment, or process payment through a software that automates the accounts payable process, such as Bill.com.

Though the AP department may seem small, they are mighty. They handle the diligence and tracking upfront to make things smoother down the line.

This article was written by Gabriella Hall. Gabriella is an Accounts Payable Senior with Baldwin CPAs. For more information on the support Baldwin CPAs can provide you, contact gabriella.hall@baldwincpas.com.