Believe us when we say that the accounts payable process is one of the most crucial tasks to accomplish correctly.

Accounts payable is critical for many businesses because it provides insight into other key KPIs such as cash flow management, fraud detection, and vendor relationships. No doubt it is considered one of the most important, but risky, responsibilities of any modern organization.

Accounts payable processing guarantees that suppliers and vendors are paid on schedule. The purpose of the AP process is to ensure the legitimacy and correctness of each payment made by the company to a supplier or vendor.

This article dives deep into the AP processes involved in many businesses accounting and how they may be effectively tracked and controlled.

Definition of Accounts Payable Process

A company’s accounts payable procedure manages its responsibilities to make quick payments to suppliers and vendors.

Simply described, accounts payable or current liabilities record payments owed to third-party companies. Third parties include banks, corporations, and even the person from whom you borrowed money. The accounts payable balance on a company’s financial statements represents the amount of any unpaid supplier invoices, whereas the cash flow income statement displays the increase or decrease in total AP from the previous quarter.

Accounts payable might also include purchases made from other firms for goods or services. The payment is normally due immediately or within a short period, depending on the payment terms.

It typically refers to short-term obligations or short-term debts that you want to repay within a year, ideally as quickly as possible after incurring them.

How Do Accounts Payable Work?

The accounts payable process works in these three key steps, which are detailed below.

Making a Purchase Order

The items or services purchased are specified here, along with their prices. A purchase order will also include any transactional terms and conditions, as well as delivery timeframes.

Managing a Received Report

The supplier lists the items or services provided, as well as the payments owed to them, in this section. Receiving reports includes a plethora of vital information, therefore they must be properly reviewed.

Receiving and Processing the Supplier’s Invoice

When the invoice data is received, it is processed for payment by the firm. As previously said, this requires double-checking every detail to ensure it conforms to the goods or services acquired.

At the end of the procedure, the sum that was “payable” at the first step would no longer be a liability.

Receiving the purchase order (PO) from the receiving department, collecting the invoice from the vendor, comparing and certifying the PO and the invoice from the contact person, and authorizing the final payment to the vendor is all part of the accounts payable process.

How to Process Invoices in Accounts Payable?


A few procedures must be followed to correctly prepare and execute accounts payable.

Step 1: Creating an Accounting Chart

If you’re used to managing your bills, adjusting to the accounts payable process shouldn’t be too difficult.

The first step in the suitable accounts payable approach is to create a robust list of accounts that allows you to allot your costs to the relevant account. The transaction is finished up to date whenever you deliver a check or an electronic payment for the debt to the seller on time or before the due date.

Step 2: Entering Vendor Information

You’ll likely need to establish your suppliers if you’re just getting started. Whether you’re managing accounting transactions with spreadsheet software or accounting software, you’ll need to enter vendor information.

Using accounting software, you may quickly insert vendor information into the program, including the seller’s accounting and payment conditions. These accounting words refer to the period provided by the vendor or supplier to pay your obligation.

Step 3: Examining and Entering Bill Information

It is important to examine the bills carefully. Check to see whether everything listed on the invoice is for company-ordered items or services. Also, confirm that the services were delivered exactly as promised if the vendor invoice is for services rendered. After getting the report of each invoice, this step must be taken. To confirm the crucial data, compare the contents of the invoice to the original purchase order.

Once the invoice has been examined, usually the payment request has been granted. After that, you may begin entering vendor invoice data into your ledger accounts or software application.

Step 4: Go Over Any Outstanding Invoices and Process Payment

You must verify due dates to determine which supplier invoices must be paid and whether you employ a manual accounting process or accounting software.

Invoices can be paid in several ways. To pay your vendors on schedule, you can write checks, process checks using your accounting software, utilize a business credit card, or use an electronic payment channel.

Step 5: Repeat the Method Once a Week

You may reduce your monthly effort while also encouraging timely payment and fees by designing and sticking to a weekly accounts payable cycle. Even if you just have a few vendor invoice payments to make, paying invoices regularly can help with cash flow.

What are Accounts Payable Vs. Accounts Receivable?

What is Accounts Payable Vs. Accounts Receivable

Here are some of the key factors of difference between accounts payable vs accounts receivable

Accounts Payable Accounts Receivable
Accounts payable refers to unpaid debts to merchants and suppliers. Accounts payable represent payment obligations. The phrase “accounts receivable” (A/R) refers to money owed by customers for previously given products and services. It refers to customer cash payments made on credit that have yet to be collected.
A/P is shown as a current liability on the balance sheet. Receivables are categorized as current assets on the balance sheet.
An A/P increase indicates a financial inflow, whilst an A/P reduction indicates a cash outflow. A/R growth indicates a financial outflow, whereas an A/R drop indicates a cash influx.
The full amount owed to suppliers or vendors for goods and services that the buyer business receives. The amount of money owed to the company by consumers who paid with credit rather than cash for products and services previously provided.
If a company’s accounts receivable balance is increasing, it must make more cash collections in the future since more customers must have utilized credit. If an organization’s A/R balance decreases, clients who previously made credit payments have completed the transaction by making a cash payment.
An increase in accounts payable shows that late payments from customers and suppliers have created increased cash flow. An increase in A/R shows a cash outflow since more consumers made credit payments, implying that the company has less cash on hand.
Because customer outstanding credit is resolved in cash payments, a decline in accounts payable indicates a cash outflow. Because more money was recovered from previously financed sales, a decrease in accounts receivable represents an increase in cash.

The Importance of AP Management

AP process management is a critical business process to a company’s success:

  • It permits prompt bill payment, which is critical for a company’s creditworthiness, and relations with business partners, and it assists in the creation of solid vendor relationships.
  • Prompt payments can help to prevent late fee payments, fines, and penalties.
  • Accounts payable processing prevents the AP team from overpayment and multiple other payments for the same goods or services.
  • It keeps track of the company’s requests and purchases, which allows day-to-day operations to run smoothly.
  • It groups all purchases for easier retrieval.
  • By performing thorough follow-ups and inspections at each stage of the procurement process, AP processing reduces fraud.
  • It also helps with cash flow management by allowing payments to be made only when they are due, utilizing vendor credit.

Challenges to the AP Process

Management is continually searching for methods to make the accounts payable department’s job simpler. Let us now look at the most prevalent challenges that specialists in this field face:

Manually Entering Data

Legitimate and accurate data from multiple sources and formats is crucial to accounts payable. It requires a lot of data entry, handling vendor invoices, matching invoices and vendor details, bills, etc. which are error-prone if done by hand, to gather it all for usage.

Documentation Hassel

Nobody enjoys having a confusing balance sheet and a stack of corporate financial statements on their desk. Though bigger organizations automatically extract hundreds of vendor invoices and incoming bills, AP is incredibly paper-intensive. Paper processing and sorting take time and might divert attention away from more important tasks.

Procedural Sluggishness

The manual approval process for each vendor invoice might take an eternity, especially if multiple external stakeholders must be involved.

Time Lags

This is especially true when manually processing AP, as paper records must be transported between tables and AP departments. This may cause delays in processing invoices, paying vendors, and the approval process. Delays in the account payable cycle can lead to late deliveries of requested merchandise, a bad credit score, strained vendor relationships, and penalties or fines.

Excellence in Management

AP team must deal with exceptions including missing or inaccurate invoice information, and inaccurate payments, which can cause severe delays.

Unnecessary Purchases

The absence of sufficient internal controls and checkpoints in the accounts payable cycle may result in wasted or illegal transactions.

Deception and Theft

AP teams must continuously be on the lookout for fraud and theft, both within and outside the organization.

Documents Missing

Important supporting documents of a transaction, such as invoices, may be lost or misplaced as a result of paperwork. Throughout the accounting payable cycle and month-end close, this might result in a range of concerns, ranging from disgruntled suppliers to operational delays.

Two Payment Installments

Because of irregular and inadequate paperwork, the same vendor’s invoice might be paid twice the payment amount. If numerous ERPs or financial software are utilized instead of a single integrated system, double-entry accounting may occur.

Concentration Lapses

Paper-based and manual procedures are associated with opacity, which makes it difficult for AP teams to watch the company’s cash flow in a timely fashion.

These challenges compound to provide an accounting process that is both sluggish and difficult to monitor.

Best Practices For an Accounts Payable Process

To improve accounts payable operations, all relevant AP documentation should be collected in one spot and filed for quick access. Accounting procedure automation may make this achievable. The majority, if not all, of the problems encountered by AP operations, are overcome by automation. The following higher-value tasks are performed by automation:

  • Removing accumulated paper clutter reduces processing time and error rates. It also minimizes data entry errors.
  • The whole accounts payable cycle is displayed by integrating POs, invoices, and electronic payments.
  • Helps to avoid vendor fraud and improve vendor management.
  • Enables a simple three-way match to minimize the number of quantity discrepancies caused by manual checks and verifications.
  • Allows for the creation of various checkpoints during the accounting payable cycle to reduce overpaying or wasteful purchases.
  • When deviations are identified at any level of the accounts payable system, warnings and alarms can be triggered. Eliminate any instances of fraud, theft, duplicate payments, unpredictable spending, or any other inefficiency/loophole.
  • You can define payment deadlines. Purchasing department manages invoices 10 times faster than the manual processes to reduce AP days. Ap department must maintain a good accounts payable system to manage vendor payments, the amount that the company pays, pay invoices, maintain a cycle of the accounts, basic AP workflows, invoice collection, invoice approval, invoice processing, purchasing process, request payment, payment processing, etc. This also helps you assign early payment discounts and maintain the correct account.
  • Allows for the preparation of monthly reports to help the organization better understand its spending habits and prepare for audits and taxation. Reduces AP expenditures for firms by 80%.
  • Identify exceptions, manage them effectively, and route them to the appropriate person.

Summing Up

The accounts payable process is an essential aspect of running a successful business. A solid accounts payable process may assist the accounts payable department to avoid costly late fees, making valuable business relationships, and ensuring that all of your expenses are completely documented. To avoid any app workflow damage and attain optimum efficiency of the AP department from a single platform, you must employ AP automation software in your business.

Simply put, the dangers of human error are too high to rely on the chance of manual data entry, and invoice management processes. A sloppy accounts payable procedure might undermine your supplier relationships while also raising the risk of fraud in your small business.

Considering these suggestions will help you to enhance your operations to ensure a speedy and flawless accounts payable process.