Accounts payable process: steps, workflow and automation

Published Monday 30 March 2026

Table of contents

• What is accounts payable
• Why accounts payable matters
• Accounts payable process steps
• Best practices for accounts payable success
• How to automate accounts payable
• Manage your accounts payable efficiently with Xero
• FAQs on accounts payable process

Key takeaways

• Implement three-way matching by comparing your purchase order, invoice, and goods receipt before approving any payment to catch pricing errors and confirm you received what you ordered.
• Schedule payments strategically using your cash flow forecast to ensure you have sufficient funds while capturing early payment discounts that can strengthen supplier relationships.
• Set up a dedicated email address for all invoices and review them immediately when they arrive to catch errors early and avoid payment delays.
• Consider automating your accounts payable process if you handle more than 20-30 invoices monthly, as automation can reduce processing costs by up to 50% and free up staff time for other tasks.

What is accounts payable

Accounts payable (AP) is the money your business owes to suppliers for goods or services you've received but haven't yet paid for. It appears as a liability on your balance sheet.

The full AP cycle runs through several steps, from getting quotes to approving and executing payments.

Why accounts payable matters

A well-organised AP process protects your cash flow, strengthens vendor relationships, and helps you avoid costly mistakes.

• Vendor relationships: Paying on time keeps suppliers happy and can unlock early payment discounts or better terms, with research showing that 76% of suppliers prioritise service for customers who pay early.
• Cash flow visibility: Knowing what you owe and when helps you avoid running out of money
• Fewer surprises: A clear process means fewer missed payments, late fees, and awkward phone calls

When managed through accounting software, AP becomes easier to track and control.

Accounts payable process steps

The accounts payable process has seven key steps, starting when you place an order and finishing when you record the payment. Here's how each step works.

1. Placing orders

Clear communication at the ordering stage prevents problems later:

• Confirm order details: Make sure your vendor knows exactly what you need so they can deliver correctly
• Review quotes: Check that pricing matches your order and fits your budget
• Discuss payment terms: Find out when payment is due and whether there's flexibility
• Authorise the expense: Approve the purchase once price and terms are agreed
• Assign a PO number: If you use purchase orders, assign one now so the vendor can include it on their invoice
• Confirm invoice delivery: Let the supplier know where to send their invoice to avoid delays

2. Receiving invoices

Set up a system that keeps all invoices in one place and makes them easy to find.

• Use a dedicated email address: Send all invoices to one inbox so nothing gets lost
• Keep digital copies: Electronic invoices are easier to search and organise than paper
• Review invoices immediately: Open each bill when it arrives to catch errors or surprises early

Software like Xero can automatically scan emailed bills and create a report of what you owe and when.

3. Approving or disputing invoices

Before approving any invoice, verify it's accurate and complete.

• Check the details: Confirm the invoice matches the goods or services you received
• Verify the amount: Make sure the cost matches what you agreed to pay
• Get approvals: Forward the invoice to partners or project managers if needed
• Raise issues early: Contact the supplier immediately if you spot mistakes, while the transaction is still fresh

One important verification method can help you catch errors before payment.

Understanding three-way matching

Three-way matching is the process of comparing three documents before approving an invoice for payment: the purchase order, the invoice, and the goods receipt.

This verification step helps you:

• confirm you ordered what the supplier is billing you for
• verify you received the goods or services
• catch pricing errors or discrepancies before paying, which is especially important as small businesses experience billing fraud twice as often as larger companies, according to an ACFE report

Three-way matching is especially useful for businesses with high invoice volumes or complex supply chains. Many AP automation tools can handle this matching automatically.

4. Recording the amount owed

Once you've verified the invoice, record the amount owed and the due date in your system.

When you record the expense depends on your accounting method:

• Accrual accounting: enter the expense as soon as you record the invoice
• Cash accounting: enter the expense when you make the payment

Learn more about cash vs accrual accounting.

5. Scheduling payment

Schedule payments strategically to balance cash flow with any early payment discounts.

Use your cash flow forecast

If you're using accounting software, scheduled payments flow straight into your cash flow forecast. Check this view to confirm you'll have enough cash to pay on time.

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

When cash is tight

If you can't meet a deadline, contact the supplier early to negotiate a new due date or payment plan.

Pay with available funds when possible to save on interest costs. But if you need credit to keep supplies coming, use it. If you're relying on credit regularly, ask a bookkeeper or accountant to review your finances.

6. Executing payment

Once the invoice is approved and scheduled, follow through on the payment as planned.

To ensure timely payments:

• schedule automated payments through your bank or software
• set a dedicated time each week for paying invoices
• use accounting software reminders to stay on track

7. Recording payment

Once you make the payment, the AP process is complete. The paid bill moves out of accounts payable, reducing your liabilities on the balance sheet.

If you use cash accounting, enter the expense into your ledger at this point.

Best practices for accounts payable success

The right controls keep your AP process running smoothly. Here are best practices to keep your process on track.

• Single-payment verification: Use invoice tracking to ensure each invoice is paid only once, keeping cash available and reconciliation simple.
• Capturing early payment discounts: Schedule payments in advance with a due date tracking system to capture available savings.
• Strong vendor communication: Contact suppliers immediately when you spot invoice issues to maintain positive relationships.
• On-time payments: Automate reminders to stay on track and pay on time. This is especially valuable since 66% of finance teams still manually key invoices into their systems.
• Complete documentation: Keep digital copies of all invoices, purchase orders (POs), and payment confirmations for smooth audits.
• Clear approval workflow: Define who approves invoices and at what thresholds to catch errors before payment.
• Cash flow awareness: Review your forecast before committing to payment dates to ensure sufficient funds.

How to automate accounts payable

AP automation uses software to handle repetitive tasks like entering data, scheduling payments, and keeping records, so you spend less time on admin. Key benefits include reducing invoice processing costs by up to 50% and accelerating approvals.

Xero automates these parts of your AP process:

• Invoice capture: reads emailed invoices and enters amounts and due dates automatically
• Cash flow visibility: shows projected balances on payment due dates
• Ledger updates: enters expenses into your accounting records at the right time

Learn more about Xero's accounts payable automation

Wondering if automation is the right choice for your business?

Signs your business is ready for AP automation

Consider automation if any of these apply to your business:

• You're processing more than 20–30 invoices per month
• Staff spend hours each week on data entry and chasing approvals
• You want to improve payment accuracy and timing
• You want to capture more early payment discounts
• You need a process that scales with your business growth

If any of these apply, AP automation can save you time and improve accuracy, with many companies able to see ROI in under a year by cutting manual hours and paying on time.

Manage your accounts payable efficiently with Xero

A clear AP process saves time, protects cash flow, and keeps vendors happy. But managing it manually gets harder as your business grows.

Xero simplifies accounts payable by automating invoice capture, tracking due dates, and syncing payments with your cash flow forecast. You get real-time visibility into what you owe and when, so you can make confident decisions.

Ready to spend less time on bills and more on your business? Get one month free and see how Xero can streamline your AP process.

FAQs on accounts payable process

Here are answers to common questions about managing accounts payable.

What is the three-way matching process?

Three-way matching compares the purchase order, invoice, and goods receipt to verify accuracy before approving payment. It helps ensure accuracy and correct payment amounts.

How long does the accounts payable process take?

Processing time depends on your business size and invoice management approach. Automated processes are typically faster per invoice, from receipt through to payment. For example, one retail chain reduced its accounts payable processing time by 30% within six months of adopting automation. With automation, many businesses can reduce this significantly by streamlining how they approve invoices and enter data.

What documents should I keep for accounts payable?

Keep copies of purchase orders, invoices, goods receipts, and payment confirmations. Most businesses retain AP records for several years for tax and audit purposes.

When should I automate my accounts payable?

Consider automation if you process more than 20–30 invoices monthly, want to improve accuracy, or want to free up staff time spent on manual data entry.

What's the difference between accounts payable and accounts receivable?

Accounts payable is money you owe to suppliers. Accounts receivable is money customers owe to you. Both appear on your balance sheet but on opposite sides.