Accounts payable process: steps, workflow and best practices

Published Tuesday 21 April 2026

Table of contents

• What is accounts payable?
• Why it matters
• Accounts payable process steps
• Best practices for accounts payable
• How to automate accounts payable
• FAQs on accounts payable

Key takeaways

• Follow a structured seven-step accounts payable process—from placing orders to recording payments—to maintain accurate financial records and avoid missed payments or costly disputes.
• Use a dedicated invoice inbox and review every invoice on arrival to catch errors quickly, prevent duplicate payments, and keep your outstanding payables organised.
• Schedule payments strategically by checking your available cash and evaluating early payment discounts, so you can strengthen supplier relationships without putting pressure on your cash flow.
• Automate routine accounts payable tasks—such as invoice scanning, payment reminders, and recurring transfers—using accounting software to save time and reduce the risk of human error.

What is accounts payable?

Accounts payable (AP) is the money your business owes to suppliers and vendors for goods or services already received. This systematic process protects your cash flow and strengthens supplier relationships.

The accounts payable process covers everything from placing orders to recording final payments. It manages a massive volume of transactions—more than 1.2 billion invoices are generated and exchanged in Australia every year.

Accounts payable vs accounts receivable

• Accounts payable: Money you owe to suppliers for goods or services received
• Accounts receivable: Money customers owe you for goods or services delivered

Both are critical to cash flow management, but they represent opposite sides of your business transactions.

Now that you understand what accounts payable is, let's explore why managing it well is crucial for your business.

Why it matters

A well-managed accounts payable process protects your bottom line and business reputation. Here are the key benefits:

• Supplier relationship protection: On-time payments maintain good standing and may allow you to take advantage of early payment discounts when suppliers offer them.
• Cash flow control: Scheduled payments prevent unexpected cash shortages and overdraft fees.
• Credit score maintenance: Consistent payment history can support your business credit profile, particularly when payment data is reported to commercial credit bureaus.
• Time savings: Organised systems reduce administrative burden and missed payment stress. Surveys show businesses believe they could save up to 10 hours every week by adopting electronic invoicing.

When you manage accounts payable through accounting software, you gain real-time visibility into upcoming payments and available cash.

Accounts payable process steps

Accounts payable starts when you order products or services and finishes when payments are made. Let's break it down.

1. Placing orders

Placing orders establishes the foundation for smooth accounts payable processing. Clear communication at this stage prevents costly disputes later.

Follow these steps when placing orders:

1. Verify order details: Confirm quantities, specifications, and delivery dates match your needs.
2. Review budget impact: Ensure costs align with approved spending limits.
3. Negotiate payment terms: Discuss due dates and early payment discounts upfront.
4. Assign tracking numbers: Use purchase order (PO) numbers for easy invoice matching.
5. Confirm invoice delivery: Provide correct email address or mailing details to avoid delays.

2. Receiving invoices

Organising invoices prevents missed payments and reduces processing time. A centralised system gives you complete visibility over what you owe.

Best practices for receiving invoices:

• Use a dedicated email: Create a specific address (like bills@yourcompany.com) for all invoices.
• Enable automatic scanning: Accounting software like Xero can capture emailed invoices and help track due dates automatically.
• Review immediately: Check each invoice upon receipt to catch errors while details are fresh.
• Maintain digital copies: Electronic invoices are easier to search, store, and access during audits. Process automation via e-invoicing typically reduces costs to less than A$10 per invoice.

3. Approving (or disputing) invoices

Approving invoices prevents overpayments and catches billing errors before they become disputes. Verifying quickly saves both time and money.

Use this verification checklist:

• Match delivery details: Confirm goods or services were actually received as billed.
• Verify pricing accuracy: Check rates match your original quote or contract terms.
• Get stakeholder approval: Forward to project managers or partners if required by your process.
• Address errors immediately: Contact suppliers within 48 hours to resolve discrepancies.

4. Recording the amount owed

Recording invoices creates an accurate picture of your business obligations and supports tax compliance.

Follow these recording steps:

1. Enter amount and due date: Log the payment obligation in your accounting system.
2. Record claimable goods and services tax (GST): Note any tax amounts you can reclaim on your return, ensuring you keep required records now known as taxable supply information.
3. Save digital copies: Scan paper invoices or save electronic versions for audit trails.
4. Choose your timing method: Accrual accounting records expenses immediately, while cash accounting waits until payment.

5. Scheduling payment

Scheduling payments balances cash flow management with supplier relationship benefits. Strategic timing maximises your financial position.

Scheduling strategies to consider:

• Check cash availability: Ensure sufficient funds will be available on the due date.
• Evaluate early payment discounts: Calculate if discounts exceed your cost of holding cash.
• Use cash flow forecasting: Accounting software shows projected balances on payment dates so you can plan ahead.
• Communicate payment delays: Contact suppliers immediately if you can't meet deadlines.
• Avoid high-interest credit: Compare the cost and terms of supplier payment plans, credit cards, and other financing options before deciding how to fund payables.

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

6. Executing payment

Executing payments completes the accounts payable cycle. Reliable systems prevent missed payments and late fees.

Payment execution methods:

• Automate recurring payments: Set up automatic transfers for regular suppliers.
• Schedule payment sessions: Block dedicated time weekly for processing approved invoices.
• Use software reminders: Enable notifications for upcoming due dates.
• Verify payment completion: Confirm transfers processed successfully before marking invoices as paid.

7. Recording payment

Recording payments finalises the accounts payable process and updates your financial records. Accurate records support tax compliance and audit readiness.

Final steps:

1. Record the payment: Enter transaction details in your accounting system.
2. Update invoice status: Mark invoices as paid to remove from outstanding payables.
3. Verify bank reconciliation: Confirm payment amounts match bank statement entries.
4. Archive documentation: Store paid invoices for tax records and audit requirements, as you generally need to keep these records for at least seven years.

Following a structured process is important, but adopting best practices will help you get even better results.

Best practices for accounts payable

These tips help you stay on top of bills and manage your cash flow effectively. Follow these tips to keep your accounts payable running smoothly:

• Keep clear records: Document every purchase from initial order to final payment to avoid confusion and simplify tax time.
• Use a dedicated inbox: Direct all invoices to a single email address so nothing gets lost.
• Review invoices promptly: Check every invoice on arrival to catch mistakes while details are fresh.
• Communicate with suppliers: Let suppliers know if you have questions or anticipate payment delays to maintain trust.
• Schedule payments wisely: Plan payments to capture early payment discounts without straining cash flow.

Once you've established good practices, automation can save you even more time.

How to automate accounts payable

Automation streamlines your accounts payable process and reduces manual work. Here's how to get started:

Choose the right software

Select accounting software that matches your business needs. Look for features like automatic invoice capture, payment scheduling, and integration with your bank accounts.

Set up automatic processes

Configure your system to handle routine tasks:

• Invoice scanning: Enable automatic capture of emailed invoices
• Payment reminders: Set alerts for upcoming due dates
• Recurring payments: Schedule regular supplier payments to process automatically
• Approval workflows: Create digital approval chains for different purchase amounts

Integrate with your bank

Connect your accounting software to your bank account for seamless payment processing. This lets you schedule and execute payments without manual data entry.

Monitor and adjust

Review your automated processes regularly to ensure they're working properly. Make adjustments as your business needs change.

FAQs on accounts payable

Here are answers to common questions about managing accounts payable.

How often should I process accounts payable?

Most businesses process accounts payable weekly or bi-weekly. This frequency balances workload with timely payments. Some businesses with high transaction volumes may process daily.

What's the difference between accounts payable and expenses?

Accounts payable is money you owe but haven't paid yet. Expenses are costs you've incurred, which may or may not be paid. An expense becomes accounts payable when you receive an invoice for it.

How long should I keep accounts payable records?

You generally need to keep accounts payable records for at least seven years to meet tax requirements. Check with your accountant for specific requirements in your region.

Can I negotiate payment terms with suppliers?

Yes, many suppliers are open to discussing payment terms. Common negotiation points include payment due dates, early payment discounts, and payment methods. Building strong relationships makes these conversations easier.

What happens if I miss a payment deadline?

Missing a payment deadline can result in late fees, damaged supplier relationships, and potential impacts to your business credit score. If you anticipate missing a deadline, contact your supplier immediately to discuss options.