Why accounts payable is vital for your financial health

Your AP team and their smooth functioning is essential to your bottom line. If they’re efficient and accurate, your business reaps the benefits in confidently predicting cash flow, enjoying the perks of solid vendor relationships, and quite literally keeping an eye on your books every day.

May 13, 2022

5 min read

Why accounts payable is vital for your financial health

When you think about the most important teams that make up your business, it’s not likely that accounts payable (AP) comes to mind. Instead, most people likely think of research and development, sales, marketing, and customer service as the most important roles. The common misconception of AP departments is far from true as this profession has evolved, becoming much more than the routine back-office task of ensuring payments go out. 

Truthfully, if accounts payable is doing their job well, it keeps everything running smoothly across departments. Though an accounts payable departments might go unnoticed when it’s running like a well oiled machine, the old way of looking at AP negates the importance of cash flow and expenses. If these key parts of every business are optimized, the cost of managing manual workloads doesn’t have to be major issue for finance leaders to waste their energy on. Maintaining supplier relationships, keeping (proactively) accurate books for forecasting, and continued process improvement are at the forefront of a successful AP team. A business can’t scale or sustain growth without these key functions. 

Now that you understand the high-level importance of an AP department, let’s dive into what accounts payable is, what this part of finance does, and how technology can improve your overall operation.

Key accounts payable takeaways

  • What is Accounts Payable?
  • What Does the Accounts Payable Department Do?
  • Why Your AP Department is Important
  • How AP Automation Can Improve Your Business

What is Accounts Payable?

‍The term “accounts payable” can refer to one of the three things: a team, a process, or the actual short-term liabilities a company holds. Essentially, it’s the handling of money owed to vendors for the procurement of goods or services. Technically, accounts payable are liabilities — though short-term — and are expenses deemed necessary to keep a business running. 

Retailers like Belk or Macy’s can’t continue to sell their merchandise without paying the suppliers who provide the shoes, shirts, or jewelry they need to keep in stock. Similarly, a commercial real estate company would not be able to retain their general contractor or air conditioning technicians if someone didn’t handle their invoices and pay those vendors on time.

What Does the Accounts Payable Department Do?

‍The accounts payable (AP) team is typically part of the accounting department. They are the individuals who handle the payment of invoices from vendors through a process that includes:

  • Reviewing, recording, and matching invoices/documentation
  • Sending invoices for approval
  • Posting invoices to the ERP or accounting system
  • Processing payments
  • Generating reports
  • Managing and nurturing vendor relationships

Each of these responsibilities consists of multiple steps, some of which are fairly time consuming, especially when a business has thousands of employees who are spending money for their respective departments and your AP team is responsible for managing hundreds of vendor accounts. For example, in any of these steps there may be discrepancies and it’s your AP team who’ll track down documentation, follow-up with approvers, review line items in ledgers and compare those to purchase orders and/or receipts, then isolate and resolve the problem. As one can imagine, this process can be lengthy when hundreds or thousands of invoices per month are in need of reconciliation.Whether it’s data entry, organizing and filing documentation, tracking down account approvals, gathering data for reports, or negotiating with vendors, your accounts payable team is handling countless tasks behind the scenes. If they do their jobs well, you likely don’t know they’re there. However, that also means you may be missing ways to optimize their performance.

Why Your AP Department is Important

In short, your AP department’s proper functioning ensures that your overall balance sheet is accurate. That balance sheet is what determines your strategies regarding business growth, expenditures, or, if necessary, cost-cutting measures. That in itself is vital to your business’s overall health and success. However, your AP department is also responsible for other essential roles such as:

  • Developing, nurturing, and maintaining positive relationships with vendors through communication, as well as accurate, and expeditious payments. In turn, vendors take care of your company by offering early payment or volume discounts, deals, or other payment options.
  • Ensure the accuracy of books and ledgers enabling businesses to leverage capital and manage cash flow.
  • Deter and prevent mistakes in accounting or attempts at fraudulent transactions.

Your AP team and their smooth functioning is essential to your bottom line. If they’re efficient and accurate, your business reaps the benefits in confidently predicting cash flow, enjoying the perks of solid vendor relationships, and quite literally keeping an eye on your books every day.

How AP Automation Can Improve Your Business

Given the importance of your AP department and the functions they perform, looking for methods to improve their efficiency and accuracy should be an objective of your leadership team. In addition to the value of increasing the reliability of your accounting data for internal and external stakeholders, streamlining the AP processes can enhance vendor relationships (by speeding up payment) as well as free up your employees’ time to optimize other processes.

If your AP team doesn’t have to spend 10+ hours per week on manual tasks to process invoices and administer supplier payments, these valuable professionals can truly excel in their roles and their careers. With more time to contribute to forward-thinking initiatives, the more you can maximize their strengths and ensure your AP team feels valued.According to an IOFL Accounts Payable Automation Trends 2022 report, nearly nine out of ten AP teams reported feeling their finance role, “could be different if invoice management and supplier payment processes were improved.” This staggering proportion of AP teams means there is acute awareness among finance professionals that there is a need to reimagine accounting and finance. Take this as a wake-up call for leaders who want to retain top AP talent. 

As the emergence of AP automation has taken the world by storm over the last decade, AP teams are taking notice and becoming dissatisfied with outdated processes and the unnecessary manual data entry even most automated software still require. Though companies have made progress with automation, 68% of AP teams report that they manually type invoices into their ERP or accounting software. 

The new era of intelligent accounting is here

As cloud-based AP solutions continue to be a huge focus for enterprises, this shift works in tandem with integrating AP software into enterprise resource planning (ERP) software. Without connecting these two critical tools, manual work is still required for invoice data to be keyed into the ERP system correctly.

"Bringing in AP teams helps the company communicate with each other and work together more effectively. There are a number of advantages associated with this type of integration and collaboration. AP teams are more prepared to work with other departments, such as manufacturing to improve how raw materials are sourced. The AP teams are also able to streamline how marketing departments sign off on campaigns or speed up the release of funds for sales teams." says Jamie Radford, founder of the Accounts Payable Association.

The goal of accounting AI or any AP technology is to simplify your workflow and eliminate manual tasks. Finding a software that integrates with your ERP system is critical to move your AP operation forward. The benefit of this type of integration takes all of your past operational success into consideration, so there is no need to rip up your current accounting process you’ve put countless hours into setting up. 

AI can take your AP automation to the next level by coding invoices for you. This is called AP Autonomy. Not only does automation decrease errors, bolstering the accuracy of your books, but it also saves you time and money. As discussed, your AP team is performing multiple functions, some of which can easily be handled by going electronic and automating data entry, record and invoice matching, approval workflows and reporting.With new age technology, these versatile employees are now freed up to perform or optimize other accounting tasks while automation manages the laborious and tedious tasks of the past.In summary, accounts payable professionals deserve recognition for keeping your business running. As you continue to scale, your AP team is there to manage a vital aspect of your company's financial health.


Sign up to receive the latest news, updates and valuable accounting and finance resources conveniently in your inbox.