Accounts payable are essential to all businesses, regardless of size. The majority of individuals, however, are unaware of the specifics of the accounts payable process unless they are actively involved in it. Without understanding the specifics, expediting or enhancing this procedure is impossible.

Businesses all across the globe operate according to a cycle based on spending and income. Accounts receivable are part of the enormous spending and buying cycle. This workflow involves several critical accounting processes and best practices for those operations to complete a transaction when a consumer places an order and gets the required product or service.

Data collection for invoices, coding invoices with the relevant account and cost center, authorizing invoices, matching invoices to orders, and posting payments are all part of the cycle accounts payable. One aspect of the P2P (pay-to-play) procedure is accounts payable (procure-to-pay). When it comes to procurement and invoice processing, P2P covers it all. AP automation speeds up and improves the accuracy of these processes at each stage of the workflow.

What are full cycle accounts payable?

Full cycle accounts payable, also known as the procure-to-pay process, refers to the complete accounting course of finishing a purchase, from the purchase requisition procedure through the final receiving, verifying, and disbursing of cash for an invoice in business accountings.

Less often, the word is also referred to the role held by an accounts payable clerk or accounts payable expert responsible for carrying out the responsibilities above.

The process is characterized by three separate steps, each with fully documented and delimited procedures and three essential papers. Each plays a vital part in ensuring that every purchase is cost-effective, lawful, and comprehensive. 

The procedures expedite payment of vendor bills while protecting against fraud and providing an audit trail that is readily verifiable for financial reporting, financial planning, etc.

The corresponding document names each stage:

1. The purchase order stage

It includes developing, approving, and submitting a purchase order to the relevant vendor by the buying department. When a vendor receives and accepts an authorized purchase order from your firm, they enter into a legal agreement with you to supply the requested products and services at the set price and according to the terms and conditions indicated on the PO prepared from business accounting software.

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2. The report receiving phase

It requires producing a receiving report and a comprehensive record of just about everything acquired in the delivery from the supplier. The receiving personnel compares the shipping documentation to the original purchase order. 

Staff members identify exceptions (such as missing, inaccurate, wrongly priced, or broken products) in the report for follow-up with the vendor. Accepted items are transferred to the inventory, and their quantities are updated in the cloud based accounting system.

3. The supplier invoice phase

In the last stage of the cycle, accounts payable, when the vendor invoices the accounts payable department for goods or services received, the process is activated, and the invoice is sent to the vendor. Accounts payable personnel do a three-way match to validate that the purchase order, receiving the report, and vendor invoice all include the same price, terms, amount, and quality of purchased products.

Exceptions are designated as discrepancies, including those indicated on the receiving report. An accounts receivable team member must spend time and energy tracking down the vendor, receiving department, or original purchaser for each discrepancy.

A final approval may be required if all three documents are the same. AP marks paid allowed invoices in the applicable sub-ledger of the general ledger and records them as journal entries in the business accounting software for businesses implementing double-entry bookkeeping.

The vital significance of full cycle accounts payable

Every rupee that leaves your company’s bank account in exchange for the products and services you need to run your business is touched by the accounts payable process, mainly the full cycle accounts payable process.

Upstream and downstream flow characterize the P2P process

Upstream and downstream flow characterize the P2P process-Cycle Accounts Payable

Preparation for maximum return on investment begins with procurement responsibilities such as supplier relationship building, strategic sourcing, contract management, standardizing methods, and codifying price conditions and mutual duties between buyers and sellers. 

These procedures may be fine-tuned to guarantee that every transaction is visible, valid, and done with the best vendor and the best payment conditions.

Accounts payable is responsible for promptly receiving, verifying, and paying vendor bills when a contract has been completed. Both directly (early payment discounts) and indirectly (extra savings and value), these procedures provide a significant possibility for capturing more savings and value.

Like a river, full-cycle accounts payable may help guarantee clear, and fast-moving waters downstream by eliminating inefficiencies upstream and maximizing water (data) quality. Business accountings staff can more easily implement workflow enhancements that will provide your company with extra value and cost savings if optimized upstream procedures.

Wrap up

So, we hope you have grasped the concept of cycle accounts payable? Most individuals have a misunderstanding of how complicated the accounts payable process is. Numerous parties are involved in various techniques that may need multiple checks and verifications. Now that you’ve mastered the full cycle accounts payable process, what’s next?

Automating your business’s manual invoice processing and approvals, as well as any concerns with late vendor payments, will help you put an end to these problems. Accounts payable may be made much easier with the help of Moon Invoice’s cloud based accounting system.

For a free demo of our business accounting software, contact us at support@mooninvoice.com or +1-805-491-9390.

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