End-to-End Process of Accounts Payable

The End-to-End Process of Accounts Payable involves the complete cycle of managing a company’s payments to suppliers. The cycle involves:   

• Purchase order creation  

• Receiving goods/services  

• Invoice receipt  

• Invoice approval  

• Payment processing   

• Recordkeeping  

The accounts payable (AP) process involves receiving and approving an invoice, securing authorization, and applying payment to a vendor’s account. While businesses may have slight variations in their approach, the core AP cycle remains the same across most industries.

A well-organized AP system helps maintain strong vendor relationships, avoid late payment fees, and ensure accurate financial reporting.

One useful metric for evaluating AP efficiency is the accounts payable turnover ratio, which measures how quickly a company pays its suppliers. This is calculated by dividing total purchases by average accounts payable. A higher ratio indicates that invoices are paid quickly, while a lower ratio may suggest delays in payments or cash flow issues.

It’s also important to differentiate accounts payable from accounts receivable (AR). AP represents money a business owes to vendors, while AR refers to money a business expects to receive from customers.

Since these two processes work in opposite directions, managing them efficiently ensures smooth cash flow and financial stability. Properly handling both AP and AR helps businesses maintain healthy financial operations and avoid disruptions in payments and collections.

It reminds us of ordering a pizza with friends. You keep the receipts, so you can divide the bill    

FAQs

What is the end-to-end AP process?

The end-to-end accounts payable (AP) process covers everything from receiving an invoice to making the final payment. It ensures that vendor invoices are reviewed, approved, and paid efficiently while maintaining accurate financial records. The process typically includes:

1. Receiving and verifying the invoice
2. Matching it with purchase orders and receipts (if applicable)
3. Securing approval for payment
4. Processing the payment
5. Recording the transaction in the company’s accounting system

What are the steps in the accounts payable process?

The AP process typically follows these key steps:

1. Invoice receipt – The company receives an invoice from a vendor.
2. Invoice verification – The invoice is checked for accuracy, ensuring it matches purchase orders or contracts.
3. Approval process – The invoice is sent to the appropriate department or manager for approval.
4. Payment authorization – Once approved, payment is scheduled based on terms agreed upon with the vendor.
5. Payment execution – The payment is made via check, bank transfer, credit card, or another method.
6. Record-keeping – The payment is recorded in the company’s accounting system for tracking and auditing.

What is the workflow of accounts payable?

The AP workflow refers to the step-by-step process of handling and processing invoices within a company. It typically involves:

1. Invoice capture – Invoices are received via mail, email, or an AP automation system.
2. Invoice approval routing – The invoice is sent to relevant managers for approval.
3. Matching invoices with purchase orders (PO matching) – If a purchase order was created, it is matched to the invoice for validation.
4. Approval and coding – The invoice is assigned an expense category and approved for payment.
5. Payment processing – The invoice is scheduled for payment according to vendor terms.
6. Reconciliation and reporting – Payments are recorded, and financial reports are updated.

How do I prepare an SOP for accounts payable?

A Standard Operating Procedure (SOP) for AP outlines the exact steps employees must follow when handling invoices and payments. To create an effective SOP:

1. Define the purpose – Explain why the SOP is important for accuracy and compliance.
2. Outline the invoice processing steps – Detail how invoices are received, reviewed, approved, and paid.
3. Specify roles and responsibilities – Identify who is responsible for each step (e.g., AP clerk, finance manager, CFO).
4. Describe payment terms and policies – Include guidelines on due dates, vendor payment terms, and approval thresholds.
5. Include compliance and audit requirements – Specify how records should be maintained for auditing purposes.
6. Document the use of software/tools – If automation is used, provide instructions on how to use AP software.

What is full cycle AP?

Full cycle AP refers to the entire accounts payable process, from invoice receipt to payment reconciliation. It includes:

• Invoice verification and approval
• Expense coding and documentation
• Payment processing
• Vendor account reconciliation
• Compliance and audit preparation

Full cycle AP ensures that all vendor transactions are properly tracked and accounted for in financial statements.

What is the P2P cycle of accounts payable?

The Procure-to-Pay (P2P) cycle is the broader process that covers purchasing and payment. It consists of:

1. Procurement – Requesting and approving purchases.
2. Purchase Order (PO) creation – Formalizing the request to vendors.
3. Receiving goods or services – Confirming receipt of ordered items.
4. Invoice processing – Matching invoices with POs and receipts for accuracy.
5. Approval and payment – Reviewing and authorizing vendor payments.
6. Reconciliation and reporting – Ensuring records align with financial reports.

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