Steps to manage your small business account payable process and automate bills

Published Friday 5 December 2025

Table of contents

• What is accounts payable
• Why it matters
• What is full cycle accounts payable
• Accounts payable process steps
• How to automate accounts payable
• Streamline your accounts payable with Xero
• FAQs on accounts payable process

Key takeaways

• Implement a systematic seven-step accounts payable process from placing orders to recording payments to ensure accurate record-keeping and maintain strong supplier relationships.

• Centralise invoice collection using a dedicated email address and review invoices immediately upon arrival to prevent processing delays and identify discrepancies early.

• Automate accounts payable tasks such as invoice scanning, payment scheduling, and transaction recording to reduce manual data entry errors and save significant time.

• Schedule payments strategically by monitoring cash flow forecasts and taking advantage of early-payment discounts while maintaining open communication with suppliers about any potential delays.

What is accounts payable?

Accounts payable (AP) is the money your business owes to suppliers for goods and services you've received but haven't yet paid for. The accounts payable process covers every step from placing orders to making final payments.

Why it matters

Effective accounts payable management protects your business relationships and cash flow. Key benefits include:

• supplier relationships: paying on time can help you get early payment discounts and better payment terms
• Cash flow control: Organised AP prevents cash shortages and improves financial planning
• Business reputation: Reliable payment history builds trust with suppliers and vendors

When managed through accounting software, it can stop you from running out of money.

What is full cycle accounts payable

Full cycle accounts payable is the whole process of managing your bills, from the moment you receive an invoice to final payment and record-keeping. It helps you make sure every payment is accurate, on time and correctly recorded.

Accounts payable process steps

The accounts payable process involves seven key steps that take you from initial purchase to final payment. This systematic approach ensures accurate record-keeping and maintains strong supplier relationships.

1. Placing orders

Placing orders sets the foundation for smooth accounts payable processing. Essential steps include:

• Review requirements: Verify quotes match your needs and budget before proceeding
• Negotiate terms: Confirm payment due dates and discuss flexibility options upfront
• Authorise purchase: Assign purchase order numbers for tracking and expense management
• Provide details: Share correct invoicing address to prevent processing delays

2. Receiving invoices

Receiving invoices efficiently prevents delays and missed payments. Best practices include:

• Centralise invoices: Use a dedicated email address to collect all bills in one location
• Review immediately: Check invoices upon arrival to identify any discrepancies early
• Automate processing: Accounting software can scan emailed bills and track due dates automatically

3. Approving (or disputing) invoices

Approving invoices ensures you only pay for what you actually received. Key verification steps:

• Check accuracy: Confirm goods/services received match invoice details and pricing
• Get approvals: Forward to relevant managers for sign-off when required
• Address disputes quickly: Contact suppliers immediately about errors, as official payment timelines often don't begin until a correctly rendered eInvoice has been received.

4. Recording the amount owed

Recording amounts owed creates accurate financial records and tax documentation. Essential tasks include:

• Log payment details: Record amount owed and due date in your accounting system
• Apply accounting method: Enter expenses immediately (accrual) or when paid (cash-based). If using an accrual basis, you must compile a list of creditors to determine your expenses for income tax purposes.
• Capture GST: Record any claimable GST for tax return purposes. According to the ATO, businesses registered for GST must choose to report GST on either a cash or non-cash (accrual) basis.
• Store copies: Save digital copies for audit purposes and easy retrieval

5. Scheduling payment

Scheduling payments balances cash flow with supplier relationships. Strategic considerations include:

• Optimise timing: Schedule payments when cash is available and early-payment discounts apply
• Monitor cash flow: Use accounting software forecasts to confirm payment feasibility
• Plan ahead: Contact suppliers early if payment delays are likely, as some government policies even include a pay interest policy for late payments.
• Manage credit wisely: Avoid high-interest credit unless absolutely necessary for business continuity

If you're not using software yet, start by downloading our free cash flow forecasting template.

6. Executing payment

Executing payments completes the accounts payable cycle and maintains supplier trust. Reliable methods include:

• Automate payments: Set up recurring payments for regular suppliers
• Schedule payment sessions: Dedicate specific times weekly for processing payments
• Use software reminders: Let your accounting system alert you to upcoming due dates

7. Recording payment

Recording payments finalises the accounts payable process and updates your financial records. Final steps include:

• Update accounting records: Enter expense transactions (cash accounting) or mark invoices as paid (accrual)
• Clear accounts payable: Move paid invoices out of outstanding payables
• Confirm completion: Verify payment shows in supplier accounts and your bank records

How to automate accounts payable

Accounts payable automation reduces manual work and prevents costly mistakes. Key automation features include:

• Invoice scanning: Automatically capture invoice amounts and due dates from emails
• Cash flow forecasting: View projected balances before and after scheduled payments
• Automatic recording: Enter transactions at the right time based on your accounting method

Learn more about Xero's accounts payable automation

Streamline your accounts payable with Xero

An efficient accounts payable process gives you a clear view of your cash flow and helps you build strong supplier relationships. When you automate tasks like data entry and payment scheduling, you save time and reduce errors. With Xero, you see all your bills and payments in one place, so you can spend less time on your books and more time running your business.

Try Xero for free to see how easy it can be.

FAQs on accounts payable process

Here are answers to some common questions about the accounts payable process.

What are the main steps in the accounts payable process?

The main steps are: receiving an invoice, approving it for payment, recording the amount owed, scheduling the payment, and then making and recording the payment in your accounting system.

What is the 3-way PO process?

A 3-way match is a verification step where you compare three documents – the purchase order (PO), the goods receipt, and the supplier's invoice. This ensures that you only pay for the goods you ordered and actually received.

What is full cycle AP processing?

Full cycle accounts payable is the complete, end-to-end management of a company's bills. It starts when an invoice is received and ends when the payment is reconciled, ensuring all payments are accurate and properly recorded.

What are the three basic functions of accounts payable?

The three core functions are invoice processing (receiving and verifying bills), payment management (scheduling and making payments), and record-keeping (maintaining accurate financial records for reporting and audits).

How long should the accounts payable process take?

The time can vary depending on the complexity of your business and the level of automation. With an efficient, automated system, the process can be reduced from weeks to just a few days, improving your cash flow management and supplier relationships.