How accounts payable runs, step by step

Accounts payable starts with a clean vendor record and ends with a stored audit trail. In between, invoices are checked, matched, approved and paid, and the ledger is corrected to reflect what was owed. Clerks, buyers, budget holders, treasury and general ledger accountants each own a distinct part of that sequence.

The steps in order

1. Set up and maintain the vendor. A vendor master team, often sitting outside AP, creates the supplier record. It captures bank details, tax identifiers and payment terms. Changes to bank details should need a second person to confirm them by calling a known contact.

1. Keep the electronic channels working. An AP systems owner looks after supplier portals, e-invoicing connections and scanning tools. When a supplier switches format or a feed breaks, invoices stop arriving quietly. Someone has to notice.

1. Audit each invoice and key it. AP clerks check that the document is a genuine invoice, addressed to the right legal entity, with the tax shown correctly. They then enter it, or correct what the capture tool read wrongly.

1. Match against the purchase order and vendor file. The system compares the invoice to the order, the goods receipt and the supplier master. Clerks review anything that fails tolerance. A pay file built later must agree with this vendor data, so mismatches get fixed here.

1. Work the exceptions. An AP specialist chases whatever did not match. This means talking to the buyer about price, the warehouse about quantity received, or the supplier about a missing credit note. Most of the real effort in AP lives in this queue.

1. Handle payables taxes. The tax team, sometimes AP itself, confirms sales tax, VAT or withholding on each invoice. Self-assessed tax on purchases where the supplier charged none is booked at this point.

1. Approve for payment. Budget holders approve invoices that lack a purchase order. Once invoices are cleared, a controller or finance manager signs off the payment proposal as a whole, checking for unusual payees and duplicates.

1. Release the payment. Treasury or a senior AP person transmits the file to the bank. Duties are split so that whoever builds the run cannot also send it.

1. Confirm settlement. Treasury checks the bank's acknowledgement and watches for rejected items. Returned payments go back to AP for corrected details and a fresh run.

1. Book accruals and reversals. At period end, a general ledger accountant estimates costs received but not yet invoiced. These entries reverse at the start of the next period so nothing is counted twice.

1. Adjust the accounting records. The same accountant posts journal vouchers for miscoded invoices, reclassifications and write-offs of old debit balances. Each manual entry is routed for approval before posting, and the period is then closed.

1. Report on payments. AP produces year-end information returns for the tax authority and payees where required. Disbursement detail also goes to the reconciliation team and to travel or grants functions that need it.

1. Answer questions as they come. A shared inbox or helpdesk, staffed by AP, fields supplier calls about status and internal queries about coding. This runs alongside every other step.

1. Retain the records. AP keeps invoices, approvals and payment evidence according to the retention policy. Auditors will ask for them.

Where the documented process and the real one part ways

Written procedures tend to show a tidy line from invoice to payment. In practice, urgent payments skip the queue, approvals happen by email and get attached afterwards, and accruals rely on one person's memory of which suppliers bill late. None of that shows up on a process map until someone asks.

Questions to ask the people who run it

• Which invoices arrive with no purchase order, and who decides how they get coded?
• What happens to an invoice that fails the match and nobody owns the exception?
• How are urgent or manual payments requested, and who can authorise them outside the normal run?
• When a supplier asks to change bank details, what exactly does the team do?
• Which spreadsheets sit alongside the system, and what would break if they disappeared?
• How is the accrual estimate built each month, and who checks it?
• Where do duplicate payments get caught, if they get caught at all?
• What do suppliers call about most often?
• Which steps get skipped at quarter end when the team is stretched?

Answers that differ between a clerk and their manager are worth noting. That gap usually marks the part of the process that will resist change.

APQC's Process Classification Framework® (PCF) is an open standard developed by APQC, a nonprofit that promotes benchmarking and best practices worldwide. To download the full PCF or to view definitions and measures, please visit www.apqc.org/pcf.