Accounts Payable Definition
Accounts Payable (AP) are funds owed by your company to other businesses or service providers because of goods purchased or services rendered. Online businesses typically process invoices for third party services, but can also include bank loans.
Online businesses use Accounts Payable transactions when they have obtained goods or services but have not yet paid for them. A short-term IOU is created, which counts as an Accounts Payable transaction when finally paid. Accounts Payable transactions can include:
- Payroll transactions
- One-time payments to contractors and / or consultants
- Invoices for new equipment / tools, packaging materials, office supplies, etc.
- Internet services and web-hosting
- Short-term loans used to launch new products, tide a business over in a slump, etc.
- Online and print advertising expenses
The importance of good AP management
It is vital that you manage your accounts payable well. There is a time limit within which accounts must be paid to avoid going into default and possibly getting a bad credit record. Always respond immediately to customers’ payment inquiries, and establish if they offer an early payment discount.
Online businesses may rely on AP loans because automation software has enabled increased efficiency. Firstly, eliminating the need to circulate paper invoices saves time and money but there are other ways that ecommerce accounts payable programs can benefit your business:
- Save time and increase efficiency by automating AP processes on a network platform that integrates the whole procurement-to-pay cycle
- Easy access to line-item data invoice status an payment timing give you information at your finger-tips in an instant
- Cash and working capital are freed up because there is a greater visibility of cash inflow and outflow
- Control over cash-flow allows you to take advantage of money saving discounts
- Optimized payment processes from effective AP management reduces business-days-outstanding (DPO) and improves your business’s credit rating with suppliers
Why accounts payable for online businesses?
As business owner you have little time for time-consuming admin work. The admin work involved in accurately checking and recording accounts payable transactions can become burdensome for small business owners. It is a vital task to keep track of your business spending and also to maintain a good credit rating with suppliers, but it takes you away from your core business. This could potentially cost you sales and productivity.
By implementing an automated accounts payable integrated system you will reduce potentially costly human errors, streamline your invoice approval system, be alerted of early payment discounts, manage your cash-flow efficiently by keeping abreast of company spending, and be able to avert potential cash-flow crises before they happen.
For more information about what you need to know about accounts payable for online businesses or to sign up for a merchant account, please call (888) 924-2743 or go to Charge.com
