Glossary: Accounts Payable

As a critical function of any business, Accounts Payable (AP) is responsible for managing the company's financial obligations to its vendors, suppliers, and creditors. Whether you are a seasoned accounting professional or a new entrant into the field, understanding the terminology associated with AP is essential.

We have compiled a comprehensive glossary of Accounts Payable terms to help you navigate this critical area of business finance.

• Accounts Payable (AP): This refers to the amount of money that a company owes its vendors, suppliers, or creditors for goods or services received but not yet paid for.

• Invoice: An invoice is a document that specifies the details of the goods or services provided by a vendor, supplier, or creditor, including the quantity, price, and total amount owed.

• Purchase Order (PO): A purchase order is a document that a company issues to a vendor or supplier to request goods or services. It specifies the type, quantity, and price of the items to be purchased.

• Receiving Report: A receiving report is a document that verifies the receipt of goods or services by the company. It details the quantity and condition of the items received and serves as evidence of delivery.

• Payment Terms: Payment terms are the conditions under which a company agrees to pay its vendors or suppliers for goods or services. These terms may include the due date, discount for early payment, or penalty for late payment.

• Vendor: A vendor is a person or business that supplies goods or services to a company. Vendors may include suppliers, contractors, or service providers.

• Credit Memo: A credit memo is a document that a vendor issues to a company to reduce the amount owed for goods or services. It may be issued for a variety of reasons, including returns, discounts, or errors.

• Debit Memo: A debit memo is a document that a company issues to a vendor to increase the amount owed for goods or services. It may be issued for a variety of reasons, including additional charges, late fees, or penalties.

• Accruals: Accruals are expenses that have been incurred but not yet paid for. In AP, accruals may include invoices that have been received but not yet processed for payment.

• 1099: A 1099 form is a tax form that a company issues to a vendor or contractor to report payments made for services rendered. The form is used to report income to the IRS and the vendor or contractor.

• Aged Payables Report: An aged payables report is a document that shows the outstanding balances owed to vendors or suppliers. It is used to track the company's financial obligations and ensure that payments are made on time.

• Accounts Payable Turnover Ratio: The accounts payable turnover ratio is a financial metric that measures the frequency with which a company pays its vendors or suppliers. It is calculated by dividing the total cost of goods sold by the average accounts payable balance.

• Payment Run: A payment run is the process of generating payments to vendors or suppliers. It involves selecting invoices for payment, verifying payment details, and issuing payments.

• Three-Way Match: A three-way match is a process that involves comparing the PO, receiving report, and invoice to ensure that the goods or services received match the invoice and the PO. It is used to prevent errors and discrepancies in the AP process.

• Electronic Data Interchange (EDI): Electronic data interchange is a system that allows companies to exchange electronic documents, including invoices, purchase orders, and receiving reports. EDI can streamline the AP process by reducing the need for paper-based documentation.

• Vendor Portal: A web-based platform that allows vendors to submit invoices and track payment status.

• Workflow Automation: The use of technology to automate repetitive tasks and streamline business processes, such as invoice approval and payment processing.

• Payment Gateway: A secure online platform that enables businesses to process electronic payments, such as credit cards, debit cards, and e-checks.

• Electronic Invoice Presentment and Payment (EIPP): An electronic billing and payment system that enables businesses to send invoices and receive payments online.

• Optical Character Recognition (OCR): A technology that converts scanned images of documents into editable text.

• AP Automation: The use of technology to streamline and automate the accounts payable process, including invoice processing, data capture, and payment processing.

• Touchless Invoice Processing: The automation of the entire accounts payable process, from the receipt of an invoice to its payment, without any manual intervention. Also called, auto add and Pass Through Processing.