Accounts Payable

What Is Accounts Payable?

Accounts payable (AP) is the money a company owes to suppliers, vendors, and creditors for purchases made on credit. When you receive goods or services before paying for them, the amount owed is recorded as accounts payable, a current liability on the balance sheet.

Accounts payable represents:

• Invoices received but not yet paid
• Credit terms extended by suppliers
• A source of short-term financing
• A key working capital component

The Accounts Payable Process

1. Purchase Order

Process begins with a purchase requisition or order:

• Department requests goods/services
• Approval obtained based on authority limits
• PO sent to vendor

2. Receipt of Goods/Services

Goods arrive or services are rendered:

• Receiving department confirms delivery
• Quality inspection if applicable
• Receipt documented in the system

3. Invoice Receipt

Vendor sends an invoice:

• Invoice received (mail, email, portal)
• Data captured into AP system
• Invoice coded to GL accounts

4. Three-Way Match

Invoice validated against supporting documents:

• Purchase Order: Was this ordered?
• Receiving Report: Was it received?
• Invoice: Does it match quantity and price?

5. Approval

Invoice routed for approval:

• Appropriate manager reviews
• Exceptions investigated and resolved
• Payment authorized

6. Payment

Invoice paid according to terms:

• Payment scheduled based on due date
• Payment method selected (check, ACH, wire)
• Payment executed and recorded

7. Reconciliation

AP subledger reconciled to GL:

• Individual vendor balances verified
• Total AP agrees to control account
• Aging analyzed for issues

Key AP Metrics

Days Payable Outstanding (DPO) Average time to pay invoices:

DPO = (Average AP / COGS) × Days in Period

Higher DPO = longer to pay = better cash flow (but may strain vendor relationships)

AP Turnover How often AP is paid during a period:

AP Turnover = Total Purchases / Average AP

Invoice Processing Cost Total cost to process an invoice:

• Industry average: $10-15 per invoice manually
• Best practice: Under $3 with automation

Exception Rate Percentage of invoices requiring manual intervention:

• Target: Under 20%
• Poor performance: Over 40%

AP Automation Benefits

Time Savings

• Invoice data capture: 80% faster
• Three-way matching: Automatic
• Approval routing: Instant
• Payment scheduling: Automated

Cost Reduction

• Lower processing cost per invoice
• Early payment discounts captured
• Fewer late payment penalties
• Reduced staff time

Accuracy Improvement

• Fewer data entry errors
• Consistent matching rules
• Audit trail for every invoice
• Duplicate detection

Visibility

• Real-time AP balances
• Cash flow forecasting
• Vendor spend analysis
• Aging visibility

Common AP Challenges

Invoice volume: Processing hundreds or thousands of invoices monthly

Paper invoices: Manual data entry from paper or PDF invoices

Matching exceptions: PO, receipt, and invoice don’t agree

Approval delays: Invoices stuck waiting for approval

Duplicate payments: Paying the same invoice twice

Vendor inquiries: Responding to “where’s my payment?” calls

How Go Fig Helps with AP

Go Fig connects to your AP system to provide:

Consolidated visibility: See AP across all entities in one view

Cash flow forecasting: Project payments based on AP aging

Vendor analytics: Analyze spend by vendor, category, and time

Exception identification: Surface unusual patterns or duplicates

Reconciliation automation: Match AP subledger to GL automatically

Payment optimization: Identify early payment discount opportunities