Accounts Payable Glossary – Important AP Terms to Know

The lexicon used by accounts payable professionals is often complex and confusing. Terms that don’t have the same definition are often used interchangeably and an overwhelming number of acronyms can be difficult to keep track of. This accounts payable glossary contains a list of important AP terms that every finance professional should know.

Use the buttons below to navigate to definitions for terms that begin with a specific letter.

A

Accounts Payable

Accounts Payable is a short-term debt that a company accrues when they purchase a good and/or service; they are obliged to pay off the amount within a specified timeframe, usually within 12 months of the initial transaction.

Accrual

Accrual accounting measures the performance of the recorded revenues and expenses when they are incurred. Income is recognized at the time of a sale, and expenses are recognized when goods and/or services are received, rather than when payments are received or sent; this provides a more accurate view of net profits for a period than cash accounting.

ACFE

The Association of Certified Fraud Examiners is a global organization with more than 37,000 members that provides training & education to assist in the reduction of fraud; members are provided with tools & expertise that they use to investigate business fraud worldwide.

ACH

Automated Clearing House acts as a central clearing facility for EFT (Electronic Fund Transfer) transactions in the United States, and provides a secure payment transfer system that connects financial institutions nationwide. ACH processes transfers between banks via the Federal Reserve & other ACH operators and is more efficient & secure than paper checks; transactions take advantage of encryption systems and transactions are typically settled within 1 - 2 days.

AI

Artificial Intelligence refers to machines, particularly computer systems, with the ability to simulate human intelligence; these display skills such as learning, reasoning, and self-correction.

AP Automation

Accounts Payable Automation allows companies to automate various invoice and payment processing tasks that are typically done manually. AP Automation platforms begin by capturing digital or scanned invoice information through OCR (Optical Character Recognition). Information from bills & invoices is then automatically input and stored in the software system, removing the need to enter information by hand. The data is validated by a team of experts, then invoices are automatically coded and routed to approvers through a digital workflow specifically tailored to a company’s needs.

ASN

Advanced Shipping Notice is a notification containing pertinent information about any upcoming deliveries, and are used to notify customers about the order status of the shipment, type of packaging, carrier information, and other relevant characteristics to ensure the success of the delivery.

Automation Software

Automation software directly integrates with a company’s ERP systems, providing several invaluable functions like payment processing, reporting capabilities, vendor portal access, and audit & search views. Automation software also significantly reduces the risk of fraud through numerous safeguards, encryption, and banking-level security measures work together to protect your documents and keep your company safe from phishing scams.

B

BAI

The Bank Administration Institute is an organization working with the goal of improving functionality of financial service companies; they offer financial service professionals opportunities for education, learning resources, training, and solutions.

BAI Standards

The quality standards to which most cash management service providers and banks are held. BAI performs an annual survey on the quality of processing by financial institutions, which is frequently utilized in the formulas for quality standards for the upcoming year.

Bill to Address

The address associated with a specific form of payment to which a freight bill is to be sent.

BOL

Bill of Lading is a document providing the driver and carrier with all necessary information to process the shipment & transport services.

BPO

Business Process Outsourcing involves contracting business operations & responsibilities to a third-party vendor in an effort to increase efficiencies, cut costs, and improve vendor relationships.

C

Cash Discount

An incentive offered by vendors to encourage customers to pay within a certain timeframe; cash discounts benefit vendors because they increase the chance of a buyer paying earlier.

Cash Flow

A measure of a company's short-term viability, which compares the amount of cash flowing into a company to the amount flowing out; a healthier cash flow entails higher inflow than outflow.

CCD

Cash Concentration or Disbursement is a format for electronic payments that transfers funds overnight with the intent to improve efficiency of cash management; often used to pay only a single invoice.

CCD+

Cash Concentration or Disbursement Plus is similar to CCD but can transfer up to 80 characters of remittance data along with payments; CCD+ can also be used to pay multiple invoices.

Chart of Accounts

A list of accounts used as a basis for preparing financial reports in a business's general ledger; provides a record of financial transactions made & knowledge of which account title to use for improved efficiency.

COD

Collect on Delivery is a financial transaction where, instead of paying in advance for goods and/or services, payments are collected by the carrier at the time of delivery.

Compliance

Compliance ensures that established federal laws and specifications are taken into account in regards to a company's financial processes.

Corporate Card

A credit card to be used for business expenses that is issued to employees of a company; a corporate card can be used to pay for travel, corporate events, or for any other company-related expense.

Credit Memo

A document issued by a vendor to a buyer that offsets a specified amount from an invoice, which makes good issues such as damaged/returned goods, lack of delivery, incorrect pricing, freight charges, etc.; vendors usually apply credit memo amount to a customer's outstanding balances or issues the customer a check for the amount.

D

Data Ingestion

The process of identifying, obtaining, and importing data from any source, either for database storage or immediate use.

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

Disbursement

A measure of spending or distributing money from a company. It's important to monitor disbursements to make sure cash flow is balanced; a company needs to ensure that money flowing in exceeds money flowing out.

DPO

Days Payable Outstanding is a ratio that measures the number of days it takes a business to pay back their accounts payables.

E

EFT

Electronic Funds Transfer is an electronic transfer of money from one account to another; these transactions happen electronically and can be transferred to accounts under the same bank, or accounts under a separate financial institution.

ERP

Enterprise Resource Planning is a software system that is used to integrate the main functions of an organization in order to increase productivity and profit; ERP systems can integrate marketing, HR, sales, finance, and more.

ERS

Evaluated Receipt Settlement is a procedure where a company & vendor agree that the vendor will not submit an invoice; this produces an automated payment without the requirement of a paper invoice from the supplier. Once a goods receipt has been received, the ERS then generates an invoice based off of the quantity and the price in the purchase order.

F

Factor

A factor is an intermediary who purchases receivables from a company at a discounted rate.

Factoring

Factoring is a financial transaction where a business sells its accounts receivable to a third party for a discounted rate. Factoring helps with cash flow by obtaining the cash that is sitting in unpaid receivables.

Fixed Assets

Fixed assets, or tangible assets, are pieces of property with a useful life greater than one year that a company owns. These assets bring long-term value to a business as it continues to grow. Some examples include buildings, machinery, equipment, land, vehicles, etc.

Flowchart

A flowchart is an illustrative way to show the flow of data and transactions within an organization.

Fraud

An act or course of false representation of facts and/or the illegal activity in the course of the business for the benefit of an individual or company.

G

GAAP

Generally Accepted Accounting Principles are accounting procedures that lay out the legalities and complexities of a business. GAAP rules are what govern accounts when the details of a company's financial operations are being presented. The purpose of GAAP is to make financial statements relevant and comparable from one organization to another. GAAP is used to organize financial information into certain accounts, unfold information, and condense records into financial statements.

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.

I

IBAN

An International Bank Account Number is utilized, primarily in European countries, to make international payments.

Imaging

The process of turning photos, documents, invoices, etc. into computer-readable formats, such as TIFF, JPG, or MPEG files.

Incoterms

A list of standard definitions & rules created and maintained by the International Chamber of Commerce for common commercial terms, clarification of seller & buyer tasks, and costs & risks for international trade.

Inventory

Inventory comprises a sizable portion of a company's assets, and is comprised of finished goods, raw materials, and work-in-progress materials.

Invoice

An invoice, also referred to as a bill or a statement (though statement has a different meaning that excludes a formal request for payment), is a formal written request & transaction record submitted to a customer or client when requesting payment for services and/or goods delivered; it also includes applicable taxes, if relevant.

J

Journal

A record of daily business transactions in chronological order; describes the transaction and displays debits & credits that need to be entered into specific ledger accounts.

L

Ledger

A ledger is a compilation of related accounting & finance information; data in a ledger includes revenues, expenses, accounts receivable, accounts payable, and more.

Liability

An amount owed as an obligation from a company or entity that must be settled via asset transfer, services rendered, or assignment of future economic benefit; a liability is the result of a past transaction.

M

Machine Learning

An algorithm that allows software to more accurately predict outcomes over time, without requiring explicit updates to programming. Conceptually, the algorithm is able to receive input data and predict an output using statistical analysis while continuously updating outputs as new input data is introduced.

MCC

A Merchant Category Code is a 4-digit identifier that denotes whether a vendor predominantly provides services or goods. P-card providers assign these codes for businesses as a way to identify which p-card transactions should be reported on a 1099; purchases made from vendors labeled as service providers are reportable, whereas purchases from providers of goods are not.

MICR

Magnetic Ink Character Recognition is a technology developed to facilitate timely processing of checks; made of specially designed ink and containing an easily scanned magnetic signature, these characters are located at the bottom of checks. The encoded information contains account number, routing number, serial number, and value of the check.

N

NACHA

NACHA is an NPO representing more than 11,000 financial institutions, a network of regional payments association, and 585 organizations through industry councils. NACHA establishes national standards & procedures that enable ACH payment exchange.

O

OCR

Optical Character Recognition is software with the capability to recognize alphanumeric characters on a scanned document, then automatically formatting them into computer-readable data.

OFAC

The Treasury Department's Office of Foreign Assets Control publishes the Specially Designated Nationals and Blocked Persons List (SDN), which denotes individuals and countries with whom U.S. businesses are prohibited from doing business.

Outsourcing

Contracting a specialist third party company to handle internal company functions such as freight bill auditing, processing, and payment, usually in order to reduce costs or due to a lack of in-house expertise.

P

P-Card

Purchase cards are multi-purpose bank cards used to streamline payment & purchase order processes for low-cost transactions, typically up to $5,000 but often much smaller.

Payment

A method of transferring value/funds to or from a debt instrument or between bank depositories.

Payment Terms

Provisions regarding transaction settlement that are typically set by a vendor; may be negotiated between vendor & buyer as part of a contract.

Positive Pay

Best practice for deterring check fraud, positive pay involves reconciling issued checks from a company against checks presented for payment to a company's bank. A file is sent to the bank including check number, amount, date, and bank & account info. To ensure the payee on the presented checks is correct, the payee information may also be included, a practice that is becoming more common. The information on this file is compared to checks-issued file, mismatches are identified and rejected, and a list of exceptions is sent to the company for them to decide whether or not to pay.

Procurement

The act of obtaining items for an organization by purchasing them; the purchasing department is often referred to as the procurement department. This department handles placing & documenting orders with suppliers and all associated activities, as well as developing company policies around purchasing and negotiating contracts with suppliers.

R

Receiving

A set of activities related to acknowledgement of goods receipt and transfer of ownership, as well as where a company receives shipments from suppliers.

RPA

Robotic Process Automation involves utilization of AI software with machine learning capabilities to automate repetitive tasks that normally need to be handled by humans. RPA consists of bots, which are software robots that can mimic a human's actions, such as logging into applications, entering data, performing calculations, and completing tasks. Currently, there are three categories of RPA technologies: probots, knowbots, and chatbots.

S

SaaS

Software as a Service, also referred to as Software On Demand, is software that users access on-demand via the internet through a subscription, as opposed to software that must be installed and maintained on a company's internal computers.

Shared Services

Consolidation and restructuring of non-core company functions, generally involving centralization of administrative functions.

SME

Subject Matter Expert

Sourcing

Identifying, negotiating, and creating agreements with vendors regarding supply of goods and/or services.

Statement

A summary of unpaid invoices or a written record of an account. Unlike invoices, statements are not usually a formal request for payment; statements are usually a reminder of owed amounts by a customer.

SWIFT

The Society for Worldwide Interbank Financial Telecommunication is a private consortium of banks that maintains a global network intended for financial info exchange; SWIFT is a messaging system that transfers info about money transactions, not the actual money.

T

Three-Way Match

Validation of an invoice by matching it to a purchase order and a receiving document. If all three match or agree, the invoice is approved for payment.

TIN

Taxpayer Identification Number: A nine digit number assigned by the IRS to individuals (SSN), employers (EIN) and nonresident aliens (ITIN).

TIN Matching Program

An online database where payers can search TIN combinations and payee names; the system verifies if the name the TIN are a valid match and informs the payer.

U

Unclaimed Property

Tangible or intangible property becomes unclaimed after a specific period of time and is considered abandoned by the rightful owners. Unclaimed intangibles include money, checks, drafts, deposits, interest, dividends and income, credit balances, customer overpayment, gift certificates, security deposits, refunds, credit memos, unpaid wages, unused airline tickets, and unidentified remittances, which must be reported & remitted to a state after a period of dormancy & due diligence attempt to locate the owner.

Use Tax

A tax designed to capture revenue that slips through the cracks of sales tax law; applies to the consumption or use of a taxable product or service.

V

VAT

Value Added Tax is a tax applied to goods & services during each step of the production & distribution cycle. VAT is paid by manufacturers, distributors, and retailers when goods reach their inventories. Businesses are able to recover these payments through tax deductions as the cost of the tax is paid by consumers. VAT systems are used in over 100 countries, including Canada, New Zealand, Japan, Australia, and more. VAT rates vary from 3.6% to 25% of the total value of a good or service.

Vendor Master File

An aggregated, comprehensive database file, usually maintained by accounts payable, that contains vendor information and is used to facilitate financial transactions between companies; information includes payment terms, address, names, credit limit, and payment/purchase transaction history.

Voucher

A voucher can serve as payment authorization and/or entry of a vendor invoice into an AP system. Vouchers are usually used to identify the charging method for the invoiced amount in the company's general ledger.

W

Wire Transfer

An EFT (Electronic Funds Transfer) transaction between payer & payee; wire transfers are faster than ACH payments but also more expensive, typically costing $10 - $30 per transaction.

Workflow

The technology that manages & monitors business processes through electronic systems, defining and tracking the flow of work between individuals; also the movement of document information according to predefined processes & creating, reviewing, and distributing documents for actions.

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