Choose another country to see content specific to your location Continue

What is the full cycle of the Accounts Payable process?

  • 25 Jun 2020
  • AP Automation
What is the full cycle of the Accounts Payable process? Image

Businesses worldwide base their operations on the expenditure cycle and the revenue cycle. The accounts payable process falls under the broader expenditure and purchasing cycle. This workflow includes a range of essential accounting steps needed to complete a purchase when an order is placed and the customer receives the desired product or service, as well as best practices related to those activities.

The full cycle of the accounts payable process includes invoice data capture, coding invoices with correct account and cost center, approving invoices, matching invoices to purchase orders, and posting for payments. The accounts payable process is only one part of what is known as P2P (procure-to-pay). P2P covers the cycle from procurement and invoice processing to vendor payments. AP automation streamlines these steps and ensures a higher level of accuracy throughout every step of the workflow. 

Get to Know the Basic AP Workflow Process 

The basic  accounts payable cycle includes three significant documents – purchase order (PO), receiving report (or goods receipt), and vendor invoice. To initiate a purchase, the purchasing department of an organization sends a PO to a vendor that includes the requested merchandise, quantity, and price to trigger an order. Then, when the business receives the goods, a receiving report documents the shipment, including any damages or quantity discrepancies. The vendor invoice is sent by the vendor to request payment for the goods or services provided. The AP department receives vendor invoices and the invoice management process begins. 

The below flowchart demonstrates the steps within an automated AP workflow, once an invoice is received.

General AP Procedures

Creating a guide to AP processes, procedures, and best practices helps reduce errors. Adopting AP automation solutions can help to prevent these errors. A comprehensive guide should describe a workflow process such as the following: 

  • Receive vendor invoices and perform a three-way match for consistency against purchase order, goods receipt, and invoice
  • AP to verify receipt of the goods or service to approve the invoice for payment 
  • If variances arise during invoice processing, such as the wrong quantity or price, accounts payable sends the invoice to the buyer, who works to find the source of the issue 
  • After the invoice is vouched by the AP department and all variances are addressed and corrected, checks and payments are issued promptly 
  • Once payment is sent, the invoice is marked as paid in the finance system 

The Breadth of the AP Process

Accounts payable encompasses almost all of the payments a business makes, with the exception of payroll. It is crucial to have accuracy in vendor data maintenance and payments to avoid losses and problems. The main goals are to pay only legitimate and accurate invoices (what the company ordered, received, accurate costs, quantities, terms, etc.) and to find savings opportunities where available, such as through early payment or dynamic discounting. AP automation seamlessly establishes internal controls to avoid paying fraudulent or inaccurate invoices and to ensure that all invoices are accounted for. 

The full cycle AP process is an integral part of a company’s financial statements, and efficiency is required every step of the way.  Consider double-entry accounting and how omitting a vendor could lead to two incorrect amounts for two accounts. The ramifications of liabilities and repair (as opposed to prevention through the smart implementation of AP automation) can be costly. For example, compromised vendor relationships can lead to production and supply problems, creating tiers of potential loss. 

Additional AP Workflow Process Considerations

Some companies use vouchers during the approval process. Not all vendor invoices have purchase orders or receiving reports, making the traditional three-way match impossible. Other payments that may need special verification include monthly payments such as lease agreements and contracts to ensure all payments rendered are legitimate and accurate. Machine Learning of data capture processes allows your automation system to learn from usual elements of the process and to make meaningful suggestions on how to handle these elements automatically in the future. 

Spend and cash flow can vary based on the time of year. Accounts payable automation provides detailed reports to help organizations better manage the full AP workflow when times are tight.  AP automation also facilitates the full-cycle accounts payable process for the highest level of efficiency and accuracy. The savvy use of accounts payable technology (given that it can seamlessly integrate with your ERP) eliminates unnecessary errors, streamlines processes, and helps companies boost their bottom line. And failing to adopt automation today can mean getting left behind tomorrow.

More finance and procurement resources

Our library of case studies, guides and much more are here to help you become a better spend management professional

View all our resources

Newsletter signup

Would you like to receive content for finance and procurement professionals via email?

In order to fulfil your request, we will process your personal data as outlined in our Privacy Policy

Articles that may interest you

5 New Year resolutions every AP manager should consider Image
10 Most Read Articles on Accounts Payable Automation from 2020 Image
How to Make a Business Case for AP Automation Image

Articles that may interest you