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Accounts payable (AP) are payments that you owe to your suppliers and other creditors. Once you purchase goods and services from your vendors or suppliers, you are issued an invoice, which acts as a line of credit that can be paid at a later date.
Since AP comprises payments owed to third parties, it is entered as a credit transaction in your general accounting ledger to keep an “account” of payments owed.
Managing huge volumes of paper-based invoices from vendors and suppliers is a key challenge for small business finance managers, as it can often result in errors due to manual data entry. Shifting to using AP software can help you digitize your financial practice and remove these key challenges.
In this buyer’s guide, we’ll define accounts payable software and its core features, highlight some trends surrounding it, and answer some relevant questions that you should ask potential vendors before purchasing an AP tool.
Jump to the following sections for a quick look:
Accounts payable (AP) software is technology that helps your business track payments you owe to suppliers and vendors so you don’t default on any payments and/or pay extra penalties or interest due to late payments.
AP software is at the core of financial management of your small business, as it helps to automate financial transactions related to billing, invoicing, and expense management.
Over the past two decades, the types of AP tools available have diversified into an array of spreadsheet applications and cloud-based ERP AP tools. Here are the types of accounts payable tools that are most often used by small business finance managers:
Traditional AP tools. This type of AP software is typically offered as one capability within a more traditional accounting application that is based on older spreadsheet tools that required manual data entry. Advancements in storage devices such as hard drives and CD-ROMs allow traditional accounting tools to be installed as stand-alone software on desktop computers that are authorized through the purchase of a license.
SaaS AP tools. Advancements in cloud computing and high-speed internet connectivity have led to the emergence of Software-as-a-Service (SaaS) platforms for all types of business services, including cloud-based AP tools.
ERP AP tools. Technological improvements in back-office operations have led to the development of enterprise resource planning (ERP) tools. ERP tools integrate the core functions of a business, such as HR, finance, operations, etc. to create a centralized business focus.
Key question to ask your vendor before you buy: Based on my requirements, should I opt for a complete ERP suite for managing accounts payable or a cloud-based accounting tool that also specializes in invoice management and billing?
The types of accounts payable software mentioned above are deployed through various mediums to improve user accessibility on multiple devices such as desktops, mobile devices, and tablets.
On-premise: Installed locally on a computer within the business facility. These types of AP tools have single user license agreements that can only be used from the computer on which the application is installed. Accounts payable information is stored on the hard drive of the computer or server located on an organization’s premises.
Cloud-based: AP tools can be downloaded to a computer from the vendor's website with a single license agreement that allows multiple users to access the application. Cloud-based AP tools are based on the SaaS model of software technologies which enables them to be accessed across devices such as mobile, desktop, and tablet.
Web- or browser-based: AP tools are also deployed on browsers such as Google Chrome, Firefox, Internet Explorer, etc., so that users don’t have to install an application on their hard drives, but can still access them through a browser-based interface. All web-based applications are based on the cloud model, with the accounts payable data stored on the vendor's server. The only difference from cloud-based AP tools is that the interface is accessed through a browser rather than a native app.
Key question to ask your vendor before you buy: What are the pricing plans for your AP tools for each deployment option offered?
While considering accounts payable tools, make sure that the features offered match your specific business requirements. Here are some common AP software features that you should consider while finalizing your AP software purchase.
Provides a detailed listing of each invoice due to your suppliers and vendors, with due date and the current balance in your bank account available to make the payments.
Screenshot of invoice management feature with invoice details, including the date, supplier, due date, cost center, and more (Source)
Helps to keep a tab on bills and payments incurred in the day-to-day running of your business. Expenses can range from travel, utilities, and food, as well as any other expenses that come up throughout daily operations.
Expenses differ from invoices as they are not payments due to your supplier and vendors; rather, they are bills and payments spent on your own business.
Detailed expenses view, which shows the payee and amount, as well as the ability to itemize each expense (Source)
Purchase order processing
Helps track detailed purchase information, including the vendor, the number of items purchased, delivery details, supplier requirements for payment, order history, etc.
This feature also helps you to create digital purchase orders that can be directly emailed to your suppliers and vendors.
Screenshot of purchase order purchasing with a detailed overview of purchase order number, supplier, and the total amount (Source)
Cash flow management
This feature helps your business avoid bankruptcy by providing a regular update of payments that you’ve made to and received from customers, suppliers, and vendors against the total amount of money you have in your bank account
Cash flow management helps you forecast your monetary requirements based on your current expenditures and savings.
Detailed screenshot of cash flow management tab that highlights the volume of cash in your accounts payable based on the month and date (Source)
Provides a detailed summary of all your accounts payable related finances from invoice management to balance sheet details to get an accurate picture of your AP in real time.
Detailed screenshot of a reports tab that provides detailed reporting parameters related to reporting accounts payable information (Source)
Key question to ask your vendor before you buy: What are the core and optional accounts payable features offered in my price range?
*Note: The applications selected are examples to show a feature in context, and are not intended as endorsements or recommendations.
Accounts payable is an integral part of any type of business. This means that you may need to integrate your AP tools with other tools related to your CRM and sales processes with. Here are three important AP integrations:
Sales and CRM tools to track bills and payments that can be processed further in an AP tool.
Billing tools to calculate payment owed and income and integrate with an AP database.
Digital payment wallets such as PayPal to make an online payment to vendors and suppliers.
Key question to ask your vendor before you buy: How many integration options does your AP tool offer?
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