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The accounts payable process is all about how a company pays its bills. For most companies, accounts payable begins with receiving an invoice and ends with issuing payment to the supplier. Usually companies pay invoices on a daily, weekly, or semimonthly basis. In addition to paying invoices, the accounts payable group typically has responsibility for managing accounting policies that affect supplier relationships and cash management.

Companies generally follow a standard set of activities for processing an invoice for payment. The accounts payable staff:

• Receives the invoice via mail, e-mail, or EDI
• Categorizes the invoice, possibly enters it into a computer system, and routes it for further processing
• Reviews the invoice for authenticity and arithmetic accuracy
• Documents the invoice by attaching receiving paperwork and the matching purchase order
• Obtains the required approvals to pay the invoice
• Schedules the invoice for payment, taking into consideration the company's priorities for payment, the invoice due date, and possible prompt-payment discounts
• On the appropriate day, pays the invoice via check or electronic means and notifies the supplier of payment

In addition to paying invoices, the accounts payable group completes all tasks related to payables. For example, they respond to inquiries from suppliers and others within the company; they resolve payment issues and disputes; they categorize expenses to the appropriate general ledger accounts; and they keep the company's master file of suppliers up-to-date.

The quality of the design of the accounts payable process--and how well the company executes the process--has an impact on two areas important to the company: supplier relationships and cash flow. A company that knows what its key suppliers expect in terms of payment, and meets those expectations, furthers the relationships it has with its suppliers. And a company that coordinates its payment schedules with its cash needs makes a positive contribution to cash flow.

When evaluating your organization’s accounts payable process, consider whether the following practices are being followed:

• Utilize an EDI strategic plan using cost/benefit analysis to evaluate systems readiness and identify potential vendor partners.  Where possible, use electronic payments for disbursements.
• Integrate purchasing, payables, and receiving systems to increase efficiency and prevent errors.
• Perform root cause analysis to identify process improvements needed to eliminate the cause of incomplete or erroneous information provided to accounts payable.
• Use performance measures to monitor and report the quality and timeliness of process related information provided by purchasing and receiving.
• Identify opportunities for invoice-less processing that enables the company to pay upon receipt of materials or merchandise at agreed upon prices rather than at receipt of invoice.
• In multi-location environments, analyze the varied accounts payable processes and standardize as one common process.
• In multi-location environments, use a common system to process expenditures for payment.
• One centralized department should handle all of the accounts payable processing.
• In centralized accounts payable environments, the tasks of expense authorization, document error correction and approval verification should reside in the user groups.
• Use procurement cards to minimize small, miscellaneous invoices, and for corporate travel.
• Use self-managed work teams to focus employee responsibilities, balance workload, set performance improvement targets, and solve processing problems.
• Use systems functionality to generate invoice payments on specific due dates, based on established policies which delay payment as allowable.
• Schedule of authorization should reflect the appropriate levels for various levels of expenditures close to the user.
• The company should have separate processing techniques for the various types of payables process (e.g., inventory, service, utility and capital invoices) paid by the accounts payable process.
• Use systems functionality to automatically match the vendor invoice with supporting documents.
• Use digital imaging technology that interfaces with the existing computer system for document indexing.

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