AP Glossary — Accounts Payable Terms Explained

ACH (Automated Clearing House): A U.S. electronic funds transfer network used for direct deposits and vendor payments. ACH is the most common payment method for domestic B2B payments under $1M. Standard ACH settles in 1–3 business days; same-day ACH settles within hours for an additional per-transaction fee. Most mid-market AP teams run ACH for recurring vendor payments and reserve wire transfers for time-sensitive or large-amount transactions.
Accounts Payable (AP): The liability account representing money a company owes to vendors for goods or services received but not yet paid. The AP function in finance is responsible for processing, approving, and paying vendor invoices. In a mid-market company processing 2,000–10,000 invoices per month, AP is the primary control point for cash outflow and vendor relationship management.
AP Aging Report: A report grouping outstanding vendor invoices by how long they have been unpaid: 0–30 days, 31–60 days, 61–90 days, and 90+ days. AP aging is a key controller metric at month-end. Invoices that age past 60 days typically signal exception backlog — either the invoice is stuck in an approval queue or a three-way match discrepancy has not been resolved.
Approval Workflow: The defined sequence of people who must review and authorize a vendor invoice before payment is executed. Approval workflows vary by GL code (cost area), invoice amount, and department. In automated AP, routing rules assign approvers based on GL code ranges and dollar thresholds — without a coordinator manually deciding who reviews each invoice.
Audit Trail: A time-stamped, immutable log of every action taken on an invoice: who captured it, what it matched against, who approved it, when payment was initiated, and what wrote back to the ERP. A defensible audit trail is a primary requirement for AP internal controls and auditor review. Most finance teams require at least 7 years of AP audit trail retention.

Chart of Accounts (COA): The complete list of GL accounts in an organization's ERP, organized by account number. The COA defines every financial category for income, expenses, assets, and liabilities. In AP automation, COA structure is used to route invoices to the correct approvers — a marketing expense posting to GL 6200 routes to a different budget owner than a raw materials invoice posting to GL 5100.
Cost Center: An organizational unit that accumulates costs but doesn't generate revenue directly. In AP, invoices are coded to cost centers to allocate expenses to the right department or function for management reporting. Cost center coding occurs during GL assignment, either manually or automatically based on vendor and invoice type.

Days Payable Outstanding (DPO): A financial metric measuring how long a company takes, on average, to pay its vendor invoices. Calculated as: (Accounts Payable ÷ Cost of Goods Sold) × Number of Days. A higher DPO means the company is holding cash longer. AP automation affects DPO by compressing invoice cycle time — which can either lower DPO by enabling on-time payment, or increase it by giving the company greater control over the timing of approved invoice payments.
Duplicate Invoice: An invoice submitted more than once for the same purchase — either by the vendor in error or through data entry duplication. Duplicate invoice detection checks incoming invoices against the vendor's invoice number, amount, and date to flag potential duplicates before they enter the approval queue. Paying a duplicate invoice is one of the most common AP overpayment causes in companies with manual processing.

Early Payment Discount: A discount offered by vendors for paying before the invoice due date. The standard term "2/10 Net 30" means the buyer receives a 2% discount if payment is made within 10 days; otherwise the full amount is due in 30 days. Annualized, a 2/10 Net 30 discount is equivalent to approximately 36% APR — making discount capture highly valuable. AP automation helps capture early payment discounts by compressing the invoice-to-approval cycle, so invoices are approved within the discount window rather than arriving at payment after it closes.
ERP (Enterprise Resource Planning): Business management software that integrates core business processes — accounting, procurement, inventory, and operations — into a unified system. The ERP is the system of record for all financial transactions. Common mid-market ERPs: NetSuite, QuickBooks Online, Sage Intacct, Xero. AP automation tools connect to the ERP via API to read vendor data, sync GL codes, and write payment records back after execution.
ERP Write-Back: The process of updating the ERP system of record after a payment is executed in an AP automation tool. Write-back creates the payment record, marks the vendor bill as paid, and posts the offsetting entry to the cash account — all within the ERP. Without write-back, the AP tool and ERP fall out of sync and require manual reconciliation. Proper ERP write-back is what separates a true AP automation integration from a payment tool that creates a parallel set of books.
Exception: An invoice that fails automated processing and requires manual review. Common exception types: (1) PO price variance — invoice amount doesn't match the PO line item within tolerance; (2) missing goods receipt — no GR recorded against the PO; (3) vendor bank account change — the bank details on the invoice differ from the vendor master. AP automation surfaces exceptions in a structured queue with the context needed to resolve them, rather than leaving them in a shared inbox.

GL Code (General Ledger Code): A numeric code assigned to every financial transaction that classifies it by type (e.g., 5100 = Raw Materials, 5400 = Subcontractors, 6200 = Marketing Expense, 7100 = Facilities). GL codes determine where an invoice posts in the chart of accounts and, in automated AP, which budget owner should approve it. GL-code-based routing is more reliable than org-chart routing because the GL code reflects what is being purchased — not who happens to be in the requestor's reporting hierarchy.
Goods Receipt (GR): Documentation confirming that ordered goods have been physically received at the warehouse or receiving dock. In manufacturing AP, goods receipts are generated in the ERP when receiving staff record incoming shipments. Three-way matching uses the GR to verify that an invoice corresponds to goods actually received — preventing payment for goods that have not arrived or were received in a different quantity than invoiced.

Invoice: A document issued by a vendor requesting payment for goods or services delivered. Invoices specify amounts owed, line items, payment terms, and vendor bank details. Processing invoices — capturing, coding, matching, routing, approving, and paying — is the core function of AP. The fully loaded cost to process a single invoice manually ranges from $15 to $40 when labor, error correction, and exception handling are included.
Invoice Capture: The process of extracting structured data from an incoming invoice — vendor name, invoice number, date, line items, amounts, and payment terms — and entering it into the AP system. Invoice capture can be manual data entry, OCR (optical character recognition) for PDF invoices, or structured electronic data exchange for high-volume vendor relationships. Capture accuracy determines how many invoices will require manual correction before they can be matched and routed.

Month-End Close: The accounting process of finalizing all financial transactions for a given period before producing financial statements. For AP teams, month-end close requires ensuring all received invoices are recorded (including accruals for invoices not yet received), resolving the exception queue, confirming payment write-backs completed in the ERP, and reconciling the AP sub-ledger to the general ledger. The speed and completeness of AP processing directly determines how quickly a company can close its books each period.

Net 30 / Net 60 / Net 90: Standard payment terms specifying that the full invoice amount is due within 30, 60, or 90 days of the invoice date. Net 30 is the most common B2B payment term in the U.S. Longer net terms benefit the buyer's working capital but may reduce vendor willingness to offer early payment discounts. AP automation tracks due dates per invoice and surfaces upcoming payments before they become past due or late.

Payment Batch: A group of approved vendor invoices queued for payment execution at the same time. AP teams typically run payment batches on a defined schedule (e.g., every Tuesday and Friday) to consolidate payment processing. In AP automation, payment batch execution sends ACH files to the bank, initiates wire transfers, or issues virtual card numbers — and then writes the payment records back to the ERP.
Payment Terms: The conditions under which a vendor expects to be paid. Expressed as "Net [days]" (e.g., Net 30 = due within 30 days of invoice date) or with an early payment discount component (e.g., "2/10 Net 30"). AP automation tracks due dates and early payment discount windows per vendor from the vendor master, flagging invoices approaching their discount deadline.
PO (Purchase Order): A buyer-issued document authorizing a purchase from a vendor at a specified price and quantity. In three-way matching, the PO is one of three documents (PO + goods receipt + invoice) verified before payment authorization. PO-based procurement means every vendor invoice has a corresponding authorization in the ERP — providing the control baseline that makes automated matching possible.
Procure-to-Pay (P2P): The end-to-end business process from raising a purchase requisition to paying the vendor invoice. P2P spans procurement (requisition, PO creation), receiving (goods receipt recording), and AP (invoice matching, approval, payment). AP automation addresses the invoice-through-payment portion of P2P. Effective P2P requires clean handoffs between procurement and AP — particularly that POs are raised before goods arrive and goods receipts are recorded promptly on delivery.

Remittance Advice: A document sent to the vendor at the time of payment, specifying which invoices are being paid and the amount applied to each. Remittance advice helps vendors reconcile payments against their accounts receivable. In automated AP, remittance is generated and sent at the same time payment is executed, reducing vendor inquiries about which invoices are covered by a payment.
Routing Rules: The configured logic that determines which approver receives an invoice for review. Routing rules in AP automation are typically defined by GL code range (what the invoice is for), invoice amount (which authorization level is required), and vendor type. Unlike org-chart routing — where invoices go to a requestor's manager — GL-code routing sends invoices to the budget owner for the expense category, regardless of who submitted the purchase request.

Straight-Through Processing (STP): An invoice that completes the full AP cycle — capture, match, route, approve, and pay — without any human intervention. Also called touchless processing. The STP rate is a core AP efficiency metric: the percentage of total invoice volume that processes without manual handling. A manual AP team typically achieves near-zero STP; an automated AP process targeting PO-backed invoices should aim for 60–80%+ STP.
Supplier Portal: A self-service web interface for vendors to submit invoices directly into the AP system, check payment status, and update their banking or contact information. A supplier portal replaces email invoice submission, which creates a manual capture step and an unstructured shared inbox. Vendors who submit via portal typically have lower exception rates because the form enforces required fields — PO number, invoice date, line-item amounts — at the point of entry.

Three-Way Matching: The AP control process that verifies an invoice against its originating purchase order and the corresponding goods receipt before authorizing payment. Three-way matching confirms: (1) the invoice amount and line items match the PO within a defined tolerance, and (2) the goods or services were actually received and recorded in the ERP. Invoices that pass matching can proceed to approval or straight-through payment. Invoices that fail become exceptions. Automated three-way matching replaces a manual comparison process that, at scale, introduces error and delays.
Two-Way Matching: A simplified matching process that verifies an invoice only against the purchase order — without requiring a goods receipt. Two-way matching is common for service invoices (consulting, software subscriptions, facilities) where there is no physical delivery to record. The trade-off: two-way matching provides less fraud protection than three-way, since it cannot confirm that services were actually delivered before payment is authorized.

Vendor Master: The centralized database of approved vendors in an ERP system, containing vendor name, legal address, contact information, payment terms, 1099 classification, and bank account details. AP automation uses the vendor master to match incoming invoices to known suppliers, apply the correct payment terms, and detect new or changed bank account details — which are a primary vector for payment fraud. Maintaining a clean, current vendor master is foundational to reliable AP automation.
Virtual Card: A single-use card number generated for a specific vendor transaction, typically issued through a corporate card program. Used in AP as an alternative to ACH or wire for vendors who accept card payment or when a company wants to capture rebates on AP spend. Virtual cards improve payment security by limiting authorization to one transaction at a specific amount. They are particularly common in professional services AP for software vendors and travel-related suppliers who prefer card over ACH.

Wire Transfer: A direct bank-to-bank electronic funds transfer, settled the same business day (domestic) or within 1–2 days (international). Wires are used in AP for large payments, international vendor payments, and time-sensitive transactions where ACH settlement timing is insufficient. Wire transfers are irrevocable once sent, making pre-payment verification — including vendor bank account confirmation — a critical control for wire-based AP.

1099 Reporting: A U.S. IRS reporting requirement for payments made to independent contractors, consultants, and certain vendors above $600 in a calendar year. AP teams are responsible for issuing Form 1099-NEC (non-employee compensation) to qualifying vendors by January 31 each year. Vendors must be classified as 1099-eligible in the vendor master at the time they are added. In Sage Intacct and similar ERPs, 1099 classification is tracked per vendor and used to generate year-end reporting.

Accounts payable terms, plain English

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