The A-Z Accounts Payable Glossary

A sound understanding of the common terms used in accounts payable (AP) promotes efficiency by helping colleagues communicate clearly. Knowing AP terminology ensures team members understand the functions and aims of the department, in addition to the role played by automated AP controls. 

The following terminology is specifically relevant to the AP department. Refreshing your team’s knowledge of these terms is a step towards achieving AP best practice. 

How are you measuring your AP function’s productivity? Discover the benchmarks of success with the Basware AP Benchmarking Report ->

Accounts Payable: 

A short-term debt that a company accrues when they purchase a good and/or service.

Accruals: 

Recording of expenses incurred in a period for which no invoice or payment has changed hands by the end of that period. Accruals enable companies to be more accurate on their cash flow forecasts. 

AP Automation: 

Technology to automate AP processes, including e-invoicing, OCR, invoice matching, posting, workflow and supplier self-service. You can automate payments, supplier statement reconciliation, duplicate identification, prevention and recovery as well as other sub-tasks.

AP Workflow:

 An electronic invoice tracking and authorization system that manages the entire reconciliation process, from invoice matching to approval and payment validation. Automated systems considerably reduce time spent on this process, whilst increasing 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 reconciles issues, such as damaged/returned goods, lack of delivery, incorrect pricing, freight charges etc. Vendors either apply a credit memo amount to a customer’s outstanding balances or issue a refund. 

Debit Balance:

 Represents an asset or expense for a company. In a general ledger account this represents a vendor’s debt owed to a company, which can occur because of returns, rebates allowances and chargebacks.

Deviation: 

A situation when an invoice differs from other documentation, such as a purchase order (PO), 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 of a mismatch.

Days Payable Outstanding (DPO):

 A business’ 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’ automated AP system, eradicating the need for a hard copy.

GRNI: 

Goods received not invoiced is an account containing of goods booked in, i.e. received by the buyer, but not yet invoiced for. The GRNI account is credited with a liability until the invoice is received, at which point the liability transfers to the supplier’s AP account. 

General ledger: 

General ledger is a list of company accounts where different transactions are recorded; the ledger holds information 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 manually 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 AP to automatically extract invoice header and line-item data from invoices received from suppliers by email or paper. OCR enables AP to eliminate manual data-entry and enter invoices into the AP ledger faster and more accurately.

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 AP 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 AP teams, invoices and purchase orders should be matched to ensure the business is being billed correctly, before payment is authorized.

Supplier Statement: 

A summary of open invoices sent by suppliers to the buyer as a reminder for the buyer to check for 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 three-way-match.

Find out More

An automated AP reconciliation system, such as Basware Statement Matching, can add value to the process, reducing human error and freeing up your colleagues’ time, so they can be deployed more effectively in the department. 

To find out more about how to optimize your AP process, please get in touch.

Director, Product and Content Marketing Leigh Celones is the Product and Content Marketing Director at Basware, where she leverages her 15+ years of experience in B2B marketing to drive innovative strategies that enhance brand awareness and customer engagement. With a strong background in financial services and technology, she specializes in creating high-impact, integrated marketing campaigns that align with business objectives and foster revenue growth. Leigh is also a certified yoga instructor, blending her expertise in strategic marketing with a passion for wellness.

Accounts Payable