A sound understanding of the common terms used in accounts payable (AP) promotes efficiency by ensuring colleagues can communicate clearly, without confusion about meaning. Also, knowing AP terminology ensures team members understand the functions and aims of the department, in addition to the role played by automated accounts payable controls.
The following terminology is specifically relevant to the AP department; refreshing your team’s knowledge of these terms is a positive step towards achieving accounts payable best practice:
Accounts Payable: A short-term debt that a company accrues when they purchase a good and/or service.
Accurals: Recording of expenses incurred in a period for which no invoice or payment has changed hands by the end of that period. Accruals enable company’s to be more accurate on their cash flow forecasts.
AP Automation: Technology to automate Accounts payable processes, including e-invoicing, OCR, invoice matching, posting, workflow and supplier self-service. Automating payments, supplier statement reconciliation, duplicate identification, prevention and recovery as well as other sub-tasks can be automated.
AP workflow: An electronic invoice tracking and authorisation system that manages the entire reconciliation process, from invoice matching to approval and payment validation. Automated systems eliminate the considerable time that is necessary to complete this process manually and increases the visibility of the AP department’s work for analysis and audits.
Cash flow: A measure of a company’s short-term viability, which comprises the amount of cash flowing into a company to the amount flowing out. Accounts Payable feeds into the cashflow forecast as outflow.
Chart of Accounts: A list of accounts used as a basis for preparing financial reports in a business’s general ledger.
Credit memo: A document issued by a vendor to a buyer that offsets a specified amount from an invoice, which makes good issues suchas damaged/returned goods, lack of delivery, incorrect pricing, freight charges etc.. vendors usually apply credit memo amount to a customers outstanding balances or issues the customer a refund.
Debit balance: Represents an asset or expense for a company; in a general ledger account, represents a vendor’s debt owed to a company, which can occur as a result of returns, rebates allowances and chargebacks.
Deviation: A situation when an invoice differs from other documentation, such as a purchase order, contract of sale or delivery receipt. Deviations may include differences in the price or quantity of goods supplied. Automated AP software can detect deviations and automatically notify the supplier about the mismatch.
Days payable outstanding (DPO): A business’s average time, measured in days, to pay invoices to suppliers, calculated on a quarterly or annual basis, indicating the effectiveness of the company’s cash outflows.
E-invoice: An electronic invoice sent from a supplier via the Internet, which can be seamlessly integrated into a business’s automated accounts payable system, eradicating the need for a hard copy.
GRNI: Goods Received Not Invoiced is an account containing of goods booked in ie. Received by the buyer, but not yet invoiced by the supplier. The GRNI account is credited with a liability until the invoice is received from the supplier at which point the liability transfers to the suppliers accounts payable account.
GL: General Ledger is a list of company accounts where different transactions are recorded; the general ledger holds information that is needed to create a company’s financial statements.
Invoice matching: The AP process in which information on a supplier’s invoice is compared with relevant documents, such as a service contract, purchase order or goods receipt. The process of matching, approving and reconciling invoices may be time-consuming, leading to delays in settling payments.
Liability: The debts a business owes to other businesses or creditors, including accounts payable, overdraft and credit card balances, and loans.
OCR: Optical Character recognition; a system used by Accounts Payable to automatically extract invoice header and line item data from invoices received from suppliers by email or paper. OCR enables Accounts Payable to eliminate manual data-entry and enter invoices into the Accounts Payable ledger faster and more accurate.
Open invoice amount: An outline of the real-time status of invoices that have yet to be settled.
Payment terms: Provisions regarding settlement of transactions agreement between the buyer and supplier.
Payment on Time: KPI for Accounts Payable to measure performance of payments to payment terms agreed with suppliers.
Purchase order: A document created and submitted by a buyer which, when accepted by the seller, forms a legal contract between the parties. For accounts payable teams, invoices and purchase orders should be matched to ensure the business is being billed correctly, before payment is authorised.
Supplier Statement: A summary of open invoices sent by suppliers to the buyer as a reminder for the buyer to check if there are any discrepancies to ensure both sides of the transaction have accurate records.
Three-Way-Match: Validation of an invoice against purchase order and receiving document; price, quantity and goods received note are checked as part of 3-way-match.
An automated AP reconciliation system, such as Statement Matching, can add value to the process, eliminating mistakes and freeing up your colleagues from long-winded tasks so they can be deployed more effectively in the department.
To find out more about our software and how it works, please call 01536 262646 today.
Book a live demo to see the end-to-end processes on live customers systems and learn how easy it is to try this for free on a Proof of Concept.
Book a Live Demo to see the end-to-end processes on live customers systems and learn how easy it is to try this for free on a Proof of Concept.