The accounts payable workflow plays an important role in ensuring that your internal accounting practices run smoothly. When invoices arrive, they need processing – and there are many steps that can go wrong during this process.
An efficient accounts payable workflow can help you ensure that the process isn’t bogged down by errors and delays. But what exactly does an accounts payable workflow look like? We’re here to answer that question.
In this guide, we’ll cover what an accounts payable workflow is. We’ll also break down the process step by step, helping you to optimise your AP workflow.
What is the accounts payable workflow?
The accounts payable (AP) workflow refers to the end-to-end process that a company follows to manage its obligations to pay for goods and services received from vendors.
In simple terms, accounts payable covers the management, validation and payment of the short-term debts your company owes to its vendors. Within accounts payable, the term workflow represents the steps your company follows to fulfil these financial and accounting obligations.
The accounts payable workflow ensures that all invoices are processed and paid in an accurate, timely and efficient manner while maintaining proper internal controls and compliance with policies and regulations.
Step by step: Accounts payable workflow from start to finish
What an accounts paying workflow looks like depends on factors such as your company size and the volume of invoices you receive.
However, an AP workflow typically includes a number of essential steps that are largely the same across most businesses:
- Purchase requisition
- Purchase order (PO) creation
- Receipt of goods or services
- Invoice receipt
- Invoice processing
- Payment processing
- Recording and reconciliation
- Reporting and analysis
- Vendor communication
- Record keeping and compliance
Let’s take a closer look at each step.
1. Purchase requisition
Before the accounts payable workflow can truly begin, a team member or department must identify a need for goods or services. Once this is done, they’ll initiate a purchase requisition.
The purchase requisition is then reviewed and approved by the appropriate authority within your company.
2. Purchase order (PO) creation
When the purchase requisition is approved, the next step in the accounts payable workflow is to create a purchase order (PO).
Once created and approved by the relevant department heads or management, the PO is sent to the vendor.
3. Receipt of goods or services
Next, the vendor delivers the goods or services requested in the PO. The receiving team member or department inspects the goods or services received to ensure that they meet the criteria specified in the PO.
Finally, a delivery receipt is generated confirming the receipt and state of the goods or services.
4. Invoice receipt
Once the goods or services have been delivered, the vendor sends an invoice to the accounts payable department.
On receipt, the invoice data is captured and extracted. This is done to ensure consistency and avoid duplicate payments or fraud.
5. Invoice processing
Next up in the accounts payable workflow is invoice processing. Here, the extracted invoice details are entered into the accounting system. Once this is done, the invoice is matched against the purchase order and delivery receipt to ensure that prices, quantities and totals are correct.
Once the verification process is complete, the invoice is reviewed and approved for payment.
6. Payment processing
When the invoice has been approved for payment, it goes into payment processing. First, the payment is scheduled based on the due date and available cash flow.
Next, the payment is authorised by the relevant authority within the company. Finally, the payment is executed – typically via check, electronic funds transfer (EFT) or automated clearing house (ACH).
7. Recording and reconciliation
Once executed, the payment is recorded in the accounting system, updating the AP ledger. Regular reconciliation is carried out, ensuring that the AP records match the general ledger and bank statements.
8. Reporting and analysis
At this stage in the accounts payable workflow, relevant reports – including AP ageing reports and payment history reports – are generated for management review.
These reports are then analysed to monitor cash flow, vendor performance and AP efficiency, helping to optimise financial and accounting operations within the company.
9. Vendor communication
Throughout the accounts payable workflow, it’s important to maintain ongoing communication with vendors to negotiate terms and address any discrepancies.
Consistent, transparent communication also makes it easier to handle any disputes or discrepancies promptly – an essential part of maintaining good professional relationships with your vendors.
10. Record keeping and compliance
The final step of the accounts payable workflow is to store all relevant documentation – invoices, POs, receipts etc. – securely for future reference and audit purposes.
This is also part of ensuring compliance with internal policies, tax regulations and financial reporting standards.
Automation: The importance of streamlining your accounts payable workflow
Traditionally, the accounts payable workflow is done manually. This, however, comes with many challenges. The manual accounts payable workflow is no stranger to human error, missing or lost invoices, duplicate invoices and payment mistakes.
To mitigate these problems, many businesses are turning to automation to streamline their accounts payable workflows – and with good reason.
If you haven’t already, now’s the time to do it: automating your accounts payable workflow comes with significant benefits for your company.
Here are some of the key advantages you stand to gain:
- Increased efficiency: From receipt of invoice to payment, automation speeds up your accounts payable workflow by reducing the time spent on manual tasks.
- Cost savings: Automation reduces the need for manual data entry and processing, helping you save money on labour costs. Faster processing also lets you take advantage of early payment discounts – it’s a win-win situation.
- Improved accuracy: Automated systems minimise human errors and ensure that the AP workflow follows a consistent process, reducing the likelihood of discrepancies.
- Enhanced control: Automation offers detailed audit trails for every transaction, making it much easier to track and verify activities.
- Better visibility: Automated systems provide real-time visibility into the status of invoices and payments, enabling you to make better, more informed decisions.
- Improved vendor relationships: Faster and more accurate payment processing helps you maintain good relationships with your vendors. Automated systems can also quickly flag and help you address discrepancies, reducing the time it takes you to resolve disputes.
- Better cash flow management: With effective payment scheduling and real-time cash flow forecasting, you
