Accounts Payable (AP) is the total amount owed to vendors for goods and services. Managing accounts payable error-free is crucial in managing a business’s cash flow and generating accurate financial statements. 

Read on to understand accounts payable definition, process, automation, and more.

What is Accounts Payable?

Businesses have regular vendors and suppliers they have been working with for years. They have a mutual understanding that goods/services will be provided first on a credit basis, and the bills will be cleared later. This credit that a business owes to vendors is called accounts payable.

In accounting terms, accounts payable in a company’s ledger denotes an obligation to pay a specified amount of money or a short-term debt to their creditors. Some goods/services billed under accounts payable include raw materials, logistic costs, fuel, licensing, subcontracting, legal fees, etc.

 Generally, the finance team manages these payments right from maintaining supplier invoices to ensuring the vendors are paid on time and everything in between. But, for bootstrapped and smaller businesses, it’s usually the founders who end up crunching the numbers late at night and ensuring on-time vendor payments for uninterrupted services.

If you are one of them, it’s time to automate your accounts payable process end-to-end and spend time on things that matter for your business.

Automate Accounts Payable for your Business

Why is accounts payable management important?

Businesses deal with multiple vendors and service providers for their day-to-day operations. This results in multiple invoices and bills being raised daily, making accounts payable management and on-time payments a crucial task for businesses. Any payment delays are bound to affect the vendor relationship, which might hamper essential business activities.

Accounts Payable workflow

In any given organisation, the accounts payable workflow starts when a vendor or supplier submits an invoice or bill to the concerned accounts payable department.

After this department receives the invoice, the accounts payable clerks verify whether it is a valid or a duplicate one. Also, they code the invoice to the general ledger and conduct a two- or three-way match depending on the company’s workflow.

Following that, the accounts payable routes the said invoice for approval. After the invoice is approved, it is processed for payment.

What is the accounts payable process?

Depending on the size of the company and the number of vendor payments they deal with, the finance team or the business owners themselves take care of accounts payable. 

It’s vital to manage it efficiently to ensure accurate, on-time vendor payments and compliance with various business taxes such as TDS (tax deducted at source).

Let’s have a look at the general process and how is it carried out manually. 

Accounts Payable

  • Receiving the Invoice

The vendors raise an invoice specifying the details of all the goods and services they provided and send it across to the businesses via email or as a physical copy. 

  • Verifying the invoice 

The accounts payable or the finance department then verifies the details like vendor’s name, purchase order number, the quantity of goods etc., mentioned on the invoice or bill.

  • Updating the ledger 

Once the company receives the invoice, an expense entry is created in the book of accounts. The finance manager then approves the bill after checking the details and the due amount.

  • Making the payment

Businesses then need to ensure that all vendor and supplier payments are released on or before the due date mentioned on the invoice, after due TDS deductions. The vendor’s bank account and payment details are maintained in a separate spreadsheet. After all the necessary checks and approvals, individual payments are approved on the bank portal by the business owners themselves or finance teams/ accountants. 

In cases where the finance teams manage vendor payments, business owners or founders still need to approve them by sharing OTP for every payment raised. After the payment has been released to the vendor, the liability is struck off from the company’s ledger.

Before we move any further, let’s understand some of the difficulties businesses face while executing the above process manually.

  • Missed or lost invoices stored in drive folders or spreadsheets
  • Errors while making manual data entry of invoices
  • Manually deducting and paying TDS on difficult to navigate tax portals
  • Delayed payments due to banking hours and dependencies on founders providing OTPs

And a lot more.

If you also struggle with the above while managing vendor payments for your business, read on to understand how you can put an end to all these woes by automating your accounts payable process

Accounts Payable example 

There is a difference between accounts payable and other types of current liabilities like accruals, short-term loans, bills of exchange payable and proposed dividends. Some examples of accounts payable may include expenses related to:

  • Equipment and products 
  • Leasing
  • Licensing
  • Logistics and transportation
  • Services (subcontracting/assembly)
  • Raw materials
  • Energy or fuel or power

If an organisation buys any of the services mentioned above or goods on credit, it must immediately record the amount to accounts payable. That will help ensure that the balance sheet stays updated and accurately reports on the total amount which a business owes to vendors. This further enables transparency in accounting procedures and bookkeeping efforts.

Difference between cash flow and accounts payable

Cash flow basically refers to the net amount of cash equivalents and cash that is transferred in and out of an organisation. On the other hand, accounts payable refers to the total amount that a business owes to vendors for services and goods. For efficient cash flow management, it is essential to manage accounts payable in an error-free manner.

Accounts payable get recorded in the balance sheet as a short-term liability for any purchasing organisation.

Accounts payable can be seen as a source of cash. This implies that if it is properly managed, companies can take advantage of supplier agreements and increase cash on hand and cash flow.

Also, accountants and business managers can refer to their accounts payable and accordingly manipulate the cash flow to achieve specific targets.

For instance, suppose an organisation is starting on a new project which requires sound and healthy cash reserves. In that case, management can refrain from paying outstanding accounts payable for a while, to allocate more funds to the project.

This can be alright in the short term, but such a form of cash manipulation can adversely affect business reputation or vendor relationships in the long term. 

However, automating the accounts payable process can go a long way in optimising cash flow securely and safely.

Why automating accounts payable is vital for your business growth? 

Automating accounts payable helps businesses save time, money, reduce manual paperwork, streamline and digitise the process. 

An efficient accounts payable automation software empowers finance teams and business owners to process vendor payments in a few clicks and invest more time effectively running the business. 

Let’s understand the benefits of automated accounts payable software in a little more detail.

  • Faster approvals 

Accounts payable software allows businesses to add their finance teams and accountants with restricted access. Since everyone can access the software, reviewing and approving the bills and invoices becomes as easy as clicking a button.

You don’t need to manually log into the bank portals or face the hassle of sending multiple OTP’s. You can quickly approve vendor payments on the go.

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Click the button below to break free from becoming the OTP manager for your business and go back to being the founder.

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  • Reduce penalties

Along with being a slow process, manual invoicing is prone to human error. Any discrepancy in calculation or missing TDS due dates can result in heavy penalties. Using software like RazorpayX reduces this risk and ensures no vendor payment or TDS  due dates are missed.

  • Improve cash flow management

Accounts payable automation software allows companies to easily create monthly, quarterly, biannual, and annual reports and help them stay at the top of their cash flow management system.

  • No more paperwork and excel sheets

Businesses don’t need to store the vendor details, invoices and payment details in heavy files, both paper or excel, as everything is stored securely on the cloud. 

RazorpayX – A Complete Accounts Payable Software for Businesses

RazorpayX allows businesses end-to-end automation for adding, tracking, and clearing invoice and TDS payments.

All you have to do is upload an invoice on the RazorpayX Dashboard or forward the invoice sent from your vendor, and RazorpayX takes care of everything that follows. 

Auto-Capture Invoice Details

Our intelligent OCR extracts and populates all the invoice details saving you the hassle of manual data entry and reducing the possibility of errors.

Pay your Vendors

You can make payments instantly via IMPS, UPI, NEFT, and RTGS or schedule them for a later date.

Auto-Pay TDS

RazorpayX automatically deducts and pays the applicable TDS before the due date. Not only that, you can view all the challans on the dashboard post-payment.

So, what are you waiting for? Never miss a vendor payment again.

Automate Accounts Payable for your Business


1. What is the difference between trade payables and accounts payable?

Though the terms trade payables and accounts payable are often used interchangeably, there are slight differences in their meanings. Accounts payable are the accrued obligations or payments which a business owes, like leasing, electricity, labour, etc. On the other hand, trade payables are the money owed to vendors for inventory like supplies, business materials, etc.

2. What is the difference between accounts receivable and accounts payable?

Accounts payable refers to the amount of money an organisation owes to its vendors. On the other hand, accounts receivable refers to the money that customers owe to a concerned company. Accounts receivable is a current short-term asset, while accounts payable is a current short-term liability.

3. Is accounts payable a debit or credit?

Accounts payable is both a debit and a credit. For double-entry bookkeeping, the accounts payable department receives an invoice which gets recorded as a credit in the general ledger and then to the expense account as an offsetting debit. This matching principle follows the method of accrual accounting, where expenses and revenues get recorded in the same period that takes place prior to the invoice payment.

4. How is accounts payable a current liability?

For accounts payable, one receives an invoice for services or goods which are not yet paid. Hence accounts payable is a current or outstanding liability - a payment amount that a business owes to a vendor.

5. What are some examples of accounts payable job titles?

Some examples of accounts payable job titles include manager, clerk, specialist, director and vice president, dependent on an organisation’s structure and size.

6. What is an accounts payable turnover ratio?

Accounts payable turnover ratio refers to a ratio which is a measure of an organisation’s short-term liquidity, namely, the average rate at which the company pays off vendors. Essentially, this ratio is a metric that organisations use to measure the efficiency of paying a short-term debt. A high value of the accounts payable turnover ratio implies that the time duration between receiving an invoice and making the payment is less. On the other hand, a low value of accounts payable turnover ratio indicates that the time duration between receiving an invoice and making the payment is more.

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    Suhani Jain
    Author Suhani Jain

    Suhani is a Content Marketer at RazorpayX, and she is passionate about all things related to reading, writing, and food. 

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