What is the Accounts Payable Process?

LearnSeptember 6, 20234 min read
Caroline Lu, Product Marketing Manager

Steps of the accounts payable process

A healthy AP cycle is important because it creates a transparent, symbiotic relationship between a vendor and a buyer. The accounts payable team is able to track the vendor’s payment every step of the way. Here are the steps to the AP cycle:

Step 1: Purchase order confirmation

Once a buyer submits a purchase order to the supplier, the buyer logs that PO with a sufficient description and pending amount payable. This is basically the creation of a receipt or bill of lading.

Step 2: Vendor invoicing

The supplier will then create an invoice for the goods they provided or the service they rendered. Once the buyer receives this invoice, they will log the invoice in their accounting software with a specific due date.

Step 3: Invoice verification

After receiving the invoice, the AP team will then verify the invoice and authorize it for payment. Verification is the primary goal of accounts payable.

The invoice must contain the following bill details:

  • The proper unit costs, calculations, totals, and terms
  • What the company ordered
  • What the company received

Step 4: Remit payment

Once the invoice is marked as legitimate and accurate, the remittance is scheduled for the next pay period for outgoing payment. It is essential to file a copy of the payment to ensure a clear audit trail.

Accounts payable in accounting

Accounts payable, a form of accrual accounting, is listed under current liabilities on a business balance sheet. Current liabilities are short-term financial obligations that are due within one year. Failure to pay within the designated time frame can lead to financial defaults.

Accounts Payable vs. Accounts Receivable

Accounts payable and accounts receivable are basically opposites: payables are the funds that your business owes to others, while receivables are the funds owed to your business (such as payments from customers).

How to record accounts payable

Recording accounts payable involves double-entry bookkeeping, in which the following process happens:

  1. Debit the asset or expense account for the good or service purchased
  2. Credit the accounts payable account for the same amount when a bill or vendor invoice is received

Once the accounts payable bill is paid, your accountant will then debit accounts payable and credit the cash account.

How to create an accounts payable process guide

Creating a clear, comprehensive guide to AP processes and procedures helps limit errors and confusion.

A standard AP process guide should include the following:

  • Three-way matching: Once a vendor invoice is received, the company performs a three-way match for consistency against the goods receipt, purchase order, and invoice.
  • Invoice verification: The accounts payable team verifies the company actually received the goods or services before approving the vendor invoice for payment.
  • Invoice auditing: If there is any unexpected variance on the invoice, such as the wrong price or quantity, the AP team will send the invoice to the buyer, who will need to find the source of the issue.
  • Issue payment: After any variances are corrected, the AP department vouches for the invoice, checks, and the team can promptly issue payments.
  • Log payment: The invoice then gets marked as paid in the finance system.

Why you should automate the accounts payable process

You might consider either fully or partially automating your company’s AP process for several reasons. Accounts payable automation can reduce manual data entry errors via invoice capture and provide detailed reports for the full AP cycle, ultimately helping organizations better manage their finances. Using this type of automation can also save time and effort, eliminate unnecessary errors, and help companies boost their bottom line.

By creating an automated vendor database, your business is able to:

  • Manage all of its vendors in one location
  • Ensure the payment is recorded as it is processed
  • Easily identify the contact person for each vendor
  • See how much you’ve paid each vendor in a given time frame.

How Settle can help streamline your financials

A high-quality accounts payable process helps your company run efficiently and fairly, and maintain better relationships with your suppliers. After all, no one likes getting paid late. With Settle, it’s easy to manage the AP process on one centralized platform that also integrates with your accounting software. Settle streamlines AP for your company with tools like text recognition, approval rules, stored vendor credits, and split payments. You can even delay payment to a vendor while Settle handles the invoice for you, ensuring you have enough working capital to improve cash flow and grow your business. Contact us to find out more.

Still unsure about the AP process? Our trusted partner, Decimal, can help with that and streamline more of your back office operations. Decimal’s dedicated teams tackle financial operations for your business from bookkeeping to expense management, and more. Get started today.

SharePlatform iconPlatform iconPlatform icon

Subscribe to our newsletter


OR

Recommended Articles

What Are Net Terms?
Learn4 min read

What Are Net Terms?

Making use of net terms can enable both buyers and vendors to increase their profitability and sales dramatically. This is what net terms are.

Settle Spotlight Series: Q&A with Vividly
Learn9 min read

Settle Spotlight Series: Q&A with Vividly

We sit down to chat with Alyshah Walji from Vividly, a trade promotion management (TPM) software built by and for the consumer packaged goods industry.

What is the Cash Conversion Cycle?
Learn6 min read

What is the Cash Conversion Cycle?

A company’s cash conversion cycle can speak volumes about its operational efficiency and financial stability. It can also determine whether people get paid on time.

Accounts Receivable Factoring 101
Learn4 min read

Accounts Receivable Factoring 101

Accounts receivable factoring can help companies can improve their financial stability and cash flow. We’ll explain what it is and how it's beneficial in our guide.

How to Create an Invoice
Learn6 min read

How to Create an Invoice

Creating invoices can be tedious, especially for new businesses processing everything manually. Learn how to create invoices effectively and efficiently with this detailed guide.

Settle Spotlight Series: Q&A with SourceMedium
Learn14 min read

Settle Spotlight Series: Q&A with SourceMedium

In this month’s Settle Spotlight Series, we chatted with Will Holtz from SourceMedium about how interconnected data can be a superpower for brands in hyperscale mode.

Why Supply Chain Visibility Matters and How to Achieve It
Learn5 min read

Why Supply Chain Visibility Matters and How to Achieve It

Improving supply chain visibility is becoming a priority for many companies, as it’s essential for streamlining operations, boosting efficiency, and maintaining strong customer satisfaction for consumer brands.

Do I Need an ERP to Manage My Supply Chain?
Learn4 min read

Do I Need an ERP to Manage My Supply Chain?

Effectively managing a supply chain is essential for any consumer brand working with a network of suppliers, distributors, and partners. If you're considering an ERP for your business, here are some key factors to evaluate to ensure it meets your supply chain needs.

The 2024 Settle Staff Picks Holiday Gift Guide
Learn2 min read

The 2024 Settle Staff Picks Holiday Gift Guide

Do you really need another gift guide this time of year? Our Settle team spends so much time obsessing over our customer brands, that the right answer is obviously yes. We have compiled the inaugural Settle Staff Picks Holiday Gift Guide, with the most fire small brands out there. So read on for ideas from stocking stuffers to travel accessories – for everyone on your list. And join us in shopping small this holiday. 

Settle 2023 Product Wrap
New Feature3 min read

Settle 2023 Product Wrap

A year in review of Settle's product releases that make running CPG brands easier.

Your purchasing process. Made simple.
New Feature2 min read

Your purchasing process. Made simple.

We brought simplicity to bill pay. Now we’re bringing it to the purchasing process, with end-to-end support that takes a load off your plate.

Invoice vs. Receipt: What's the Difference?
Learn6 min read

Invoice vs. Receipt: What's the Difference?

Invoices and receipts are similar in concept, but differ in the details. Here’s what differentiates invoices from receipts, and why it’s important to understand.

What is an A/P Aging Report?
Learn6 min read

What is an A/P Aging Report?

The Accounts Payable Aging Report is an essential tool for businesses with a large number of accounts payable to track. Here’s a general breakdown of A/P Aging Reports.

What Are the Consequences of Equity Dilution?
Learn5 min read

What Are the Consequences of Equity Dilution?

Equity dilution can be a very concerning process for shareholders who are unfamiliar with its consequences. This is how to avoid equity dilution and keep stocks healthy.

What is the Accounts Payable Process?
Learn4 min read

What is the Accounts Payable Process?

Accounts payable (AP) refers to all the payments that a business owes its suppliers and creditors. Neglecting your accounts payable process can lead to production and supply issues.

Black Friday CPG Prep Checklist
Learn6 min read

Black Friday CPG Prep Checklist

Black Friday sets the tone for your business’ holiday season. Start early on forecasting demand, devising marketing strategies, and preparing your site.

How to Evaluate Accounting Firms
Learn7 min read

How to Evaluate Accounting Firms

Figuring how to find the right accounting firm for your company can be difficult. Here’s how to choose the best accounting firm for any business.

A Guide To Inventory Management for CPG
Learn6 min read

A Guide To Inventory Management for CPG

Learning to navigate inventory management can be a tricky part of growing your brand. Check out our guide to inventory management to find out more about it.

Non-Dilutive Funding Guide for CPG Brands
Learn7 min read

Non-Dilutive Funding Guide for CPG Brands

A popular source of funding is financing from angel investors and VCs. Yet many companies fail to recognise non-dilutive funding — where no ownership is lost.

Navigating Distribution And Retail Margins for CPG Brands
Learn8 min read

Navigating Distribution And Retail Margins for CPG Brands

For emerging CPG brands, navigating challenges like supply chain disruptions and retail changes underscores the critical importance of understanding and managing retailer and distributor margins, as it directly impacts profitability and success in the industry.

How to Find a CPG Distribution Partner
Learn5 min read

How to Find a CPG Distribution Partner

Partnering with the right distributor is arguably one of the most essential tasks for a retail company. Find out what to look for in distribution partners and how to source them.

Accounts Payable vs. Accounts Receivable
Learn5 min read

Accounts Payable vs. Accounts Receivable

Understanding accounts payable and accounts receivable is an essential part of business workflow. So how do they differ? Learn more about them in this guide.

An Introduction to Cash Flow Forecasting
Learn6 min read

An Introduction to Cash Flow Forecasting

A company’s ability to make a cash flow forecast is essential in the world of modern business. Here is everything you need to know about cash flow forecasting.

What Is Amazon FBA and Is It Right For You?
Learn7 min read

What Is Amazon FBA and Is It Right For You?

Using Amazon FBA is a great way for companies to expand their scalability and fulfillment abilities. Here is how it works, and how businesses can benefit from it.

How Long Does a Wire Transfer Take
Learn7 min read

How Long Does a Wire Transfer Take

Wire transfers can be the quickest method of exchanging funds. Knowing how long it takes can help determine whether wire transfer is the best solution.

Guide: The ABCs of cashflow
Learn2 min read

Guide: The ABCs of cashflow

We put our heads together with the folks at IndieCPG to create a guide to the basics of cashflow for new (and maybe even not-so-new) founders.

Settle blog

Insights in your inbox

Join our newsletter and never miss an update on Settle's latest features and industry trends.