How the Accounts Payable process works

Below, discover a step-by-step process of what the typical accounts payable process looks like from start to finish. This includes everything from the initial accounting steps that must be completed all the way through to the final delivery of the requested product or service.

By stepping into each step of the process, you can understand the AP process in a much deeper way and find ways to improve your team’s workflow.

accounts payable process

5 ways to improve your Accounts Payable department

There are many different options when it comes to improving your AP department, and in this guide, we’re going to walk through a few “quick wins” and provide you with some tips you can implement into your accounts payable process today.

Accounts Payable process

Businesses should strive to understand every aspect of the accounts payable process. How a company performs this process can determine whether they are maximizing their profit or losing money on delayed invoice payments and unnecessary hires. Business managers must understand that requiring employees to manually perform each step in the accounts payable (AP) process is a slow, expensive, and error-prone strategy. 

Rather than this method, companies should keep up with their competitors by automating the AP process as much as possible. With the possibility of human error in all seven steps of the process and the length of time it takes for employees to read, retype, and verify invoices manually, automation is the only sure way to improve the AP department and keep a good relationship with your vendors. 

The first step towards understanding the accounts payable process is to differentiate between accounts payable vs receivable. Accounts payable is the department and ledger that keeps track of invoices that a business receives from a vendor after goods are delivered. Essentially, the department keeps the books on funds owed to the vendor and then makes the payment once the invoice and goods have been verified. 

Conversely, the accounts receivable department and its corresponding ledger are responsible for keeping a record of funds owed by customers to the company. To illustrate, if a customer purchases an item on credit, once the goods are delivered, the amount must be paid by the customer to the business.

Understanding the accounts payable end to end process flow is essential before deciding on the best way to improve the accounts payable department. Simple flow charts can be found online and aid in visually portraying the AP process from start to finish. Regardless of the method for processing invoices that is currently in place at your business, the AP department would benefit from an Intelligent Document Processing software like Rossum that can automate multiple steps in the process.

Accounts Payable process steps

The accounts payable process steps from beginning to end are as follows:

  1. Receive and sort the invoice properly
  2. Extract the data
  3. Match the invoice with the Purchase Order (PO)
  4. Verify the vendor’s information
  5. Mark the invoice as approved
  6. Issue the payment
  7. Keep a record for auditing and reporting.

These steps are necessary for every invoice that a business receives. Examining an accounts payable process PDF document can be beneficial to further understand the AP process steps. Otherwise, Rossum offers some web-based ebooks on the subject of the AP process and invoice processing.

When performing these steps manually, it takes an average of 12.4 days to process a single invoice. Manual invoice processing can result in late payment fees, human error, and employee burnout. With automation, these seven steps can be performed in a fraction of the time and with a greater degree of accuracy. 

While managers could spend their time researching and inventing the best accounts payable process interview questions in order to hire only the most qualified candidates for the department, this time might be better spent on finding the most comprehensive automation tools. Rossum is an AI-powered data capture solution that can automate invoice receipt, sorting, data extraction, PO matching, and more.

Accounts Payable management

In the accounts payable department, different tasks and duties are performed that may or may not require employees. Without automation, businesses must have outstanding accounts payable management. Not only does management have to hire employees for, or outsource, data extraction and other invoice processing steps, but they must be able to keep the department running as smoothly and efficiently as possible. Management should be able to keep records in order and ensure that each employee in the department is performing their duties at the required level and that the accounts are reconciled each day. This means that accounts payable managers are responsible for the department and everything that happens in it.

In order to make sure that employees perform their tasks accurately, an accounts payable training manual should be created and given to every new hire. Without strict rules and procedures in place, the AP department will not run efficiently. This is one reason why outsourcing any portion of the AP process can result in delays, security issues, and extra work for the department. 

Nevertheless, even with the best accounts payable management, the cost of manual invoice processing will likely not be reduced. An AI-powered document processing software should be implemented in the company to reduce costs, satisfy both management and employees, and build strong vendor relationships. With Rossum, AP departments can automate specific tasks and improve accuracy and efficiency.

Best practices in Accounts Payable process

Improving the AP department can be as simple as following the best practices in accounts payable process. As with any department or business process, the right kind of management is necessary to reach the goals of the company. An effective accounts payable management process that follows best practices will affect the overall efficiency of the department. 

For instance, with AP management that keeps standards on invoice verification, the risk of fraudulent invoices will be reduced. This is why understanding accounts payable risks and controls is essential to the success of the AP department. One of the best practices for reducing risk in the AP department is to create and implement an accounts payable internal control checklist. Accounts payable managers should use this checklist to ensure that fraudulent invoices, duplicate payments, and quantity errors are caught before it is too late.

In addition, if a business is interested in automating the accounts payable process, managers should understand the best way to do so. By following accounts payable automation best practices, companies can learn what the ideal form of automation looks like as well as how to transition from manual to automated processes. One best practice when looking to automate the AP process is to ensure the automation tool is secure. Rossum is an example of a software that can automate portions of the AP process using a secure platform that can meet internal compliance requirements.

Accounts Payable policy

Accounts payable policy is a part of the process that should not be overlooked. First of all, it is crucial to follow the policies of both sides in the transaction. The accounts payable policy at a company will be different from the vendor payment policy and procedures of the business they purchased the goods from. 

For the most efficient AP department, there should be company policies to follow that standardize the process and eliminate risk as much as possible. If a business does not currently have accounts payable policies in place, looking at a payment policy and procedures sample or example online can be helpful.

When creating accounts payable policies for a business, start with examining an accounts payable procedures flowchart. A flowchart will make it easier to understand where you need to add guidelines for a step in the process and how those policies might affect other stages. Once you have determined the policies that need to be implemented, you will need to create a manual. 

To do this, looking at a sample accounts payable policy and procedures manual can help you understand the best way to develop one. The policies that need to be followed in an AP department should also be listed in the accounts payable training manual that is given to employees. This ensures that the entire department understands the rules and procedures that must be followed at the company.

Accounts Payable procedures manual

An accounts payable procedures manual should list the purchasing and accounts payable policy at the company. Accounts payable policy and procedures can vary depending on the type and size of the business. While all organizations would benefit from following an accounts payable procedures flowchart when developing a procedures manual, the exact content will look different for every company. For instance, the accounts payable policies and procedures for small business organizations will likely have fewer policies that must be followed than a large corporation because of the ease of keeping a close eye on every invoice that passes through the smaller AP department.

All businesses, whether small or large, should find an accounts payable procedures manual example before developing one for their AP department. Such an example can help companies know how other organizations have produced a practical manual. Additionally, keeping copies of the vendor payment policy and procedures manuals can make it easier to follow the policies of both the AP department and the vendor. With these policy manuals, the accounts payable department can develop a strategy for processing invoices with maximum security and efficiency. No matter what policies are in place in the AP department, Rossum can help businesses automate invoice processing securely and can integrate with the business system that is currently in place.

Accounts Payable process improvement

For companies that are looking for accounts payable process improvement strategies, there are a few different options. With a manual AP process, one way to start improving the department is by looking at accounts payable best practices examples. These examples can demonstrate what other companies have done to improve their processes, such as outsourcing or using a P2P portal. 

Accounts payable invoice processing best practices include the use of automation tools. Specifically, the best way to improve invoice processing in the AP department is to use a data capture solution with AI capabilities. While template-based software would improve data extraction to a certain extent, an AI-powered tool will provide the highest level of efficiency and accuracy. Rossum is an Intelligent Document Processing software that can improve the accounts payable process by automating pre-processing, data capture, validation, post-processing, and reporting for invoices.

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