Accounts payable process: Key steps, automation and tips

Published Monday 5 January 2026

Table of contents

• What is accounts payable?
• Why accounts payable management matters
• Accounts payable process steps
• How to automate accounts payable
• Streamline your accounts payable process
• FAQs on accounts payable process

Key takeaways

• Implement a systematic seven-step accounts payable process from order placement through payment recording to maintain strong supplier relationships and protect cash flow.
• Negotiate payment terms upfront during order placement and evaluate early payment discounts against cash flow needs to optimize your financial position.
• Utilize automation tools to eliminate manual invoice processing tasks, reduce errors, and streamline cash flow forecasting for more efficient accounts payable management.
• Address invoice errors and cash flow shortfalls proactively by contacting suppliers early to negotiate extended terms or payment plans rather than relying on costly credit options.

What is accounts payable?

Accounts payable is the complete process of managing bills your business owes to suppliers. The full-cycle accounts payable process covers every step from requesting quotes to making final payments.

This systematic approach helps you:

• Maintain supplier relationships through timely payments
• Protect cash flow with proper payment scheduling
• Avoid late fees and payment disputes

Why accounts payable management matters

Effective accounts payable management protects your business relationships and cash flow. Paying bills on time delivers measurable benefits:

• Early payment discounts: Save 1–3% on supplier invoices
• Extended payment terms: Negotiate better cash flow arrangements
• Stronger supplier relationships: Keep payment conversations clear and straightforward
• Cash flow protection: Prevent unexpected money shortages

Accounts payable process steps

Accounts payable starts when you order products or services and finishes when you make the final payment. Let's break it down.

1. Placing orders

Order placement sets up your entire accounts payable process for success.

Follow these steps:

• Review requirements carefully: Confirm quotes match your needs and budget before proceeding.
• Negotiate payment terms: Discuss due dates and flexibility upfront. This prevents cash flow surprises later.
• Authorise and track: Assign purchase order (PO) numbers to link invoices back to original orders.
• Set up invoice delivery: Provide a dedicated email address so bills arrive in one place.

2. Receiving invoices

Invoice management starts with centralised collection. Use a dedicated email address for all supplier bills.

This approach provides:

• Centralised tracking: All bills in one location
• Digital storage: Searchable electronic records
• Automated processing: Software can scan and categorise invoices
• Early issue detection: Spot problems before they become disputes

3. Approving (or disputing) invoices

Invoice approval requires systematic verification before payment. Check these elements:

• Match services received: Confirm the invoice reflects actual goods or services delivered.
• Verify costs: Double-check pricing against original quotes or agreements.
• Get stakeholder approval: Forward to project managers or partners if required.
• Address errors immediately: Contact suppliers about mistakes while details are fresh. Solving issues early keeps payments on track and protects your supplier relationships.

4. Recording the amount owed

Recording invoices creates your payment schedule and accounting records. Take these steps:

• Log payment details: Record amount owed and due date in your system.
• Enter accounting records: Use either accrual accounting (recording expenses when you receive the invoice) or cash accounting (recording expenses when you make the payment) for your records.
• Capture value added tax (VAT) information: Note reclaimable VAT for tax returns.
• Store digital copies: Scan paper invoices for audit-ready records.

5. Scheduling payment

Payment scheduling balances cash flow with cost savings. Consider these factors:

Check cash availability: Ensure you have funds available on the due date.

Evaluate early payment discounts: Weigh discount savings against cash flow needs.

Use forecasting tools to see how upcoming payments affect your cash flow:

• With software:Automated cash flow projections show how each payment affects your bank balance
• Without software: Use the free Xero cash flow forecasting template

Handle cash shortfalls proactively:

• Contact suppliers early: Negotiate extended terms or payment plans.
• Choose lower cost options than credit cards: In many cases, negotiated payment extensions cost less than using credit cards.
• Get professional help: If you use more credit, talk to an accountant about refinancing options, including government-backed initiatives such as the Growth Guarantee Scheme.

6. Executing payment

Making payments completes your accounts payable process. Ensure timely payments with these methods:

• Automated payments: Set up recurring transfers for regular suppliers
• Dedicated payment schedule: Block specific times weekly for invoice processing
• Software reminders: Use accounting software alerts for due dates

7. Recording payment

Payment recording finalises your accounts payable cycle. Complete these steps:

• For cash accounting: Enter the expense into your ledger when payment clears.
• Update accounts payable (AP) records: Move paid invoices out of accounts payable to completed transactions.
• Confirm completion: Verify the supplier relationship remains in good standing.

How to automate accounts payable

Accounts payable automation eliminates manual tasks and reduces errors. Modern software handles:

• Invoice processing: Automatically reads emailed bills and extracts key data
• Cash flow forecasting: Shows projected balances before and after payments
• Accounting integration: Records transactions at the right time based on your accounting method

Learn more about Xero's accounts payable automation.

Streamline your accounts payable process

A smooth accounts payable process helps you pay bills on time and clearly see your business finances. It protects your cash flow, strengthens supplier relationships, and gives you a clear view of your business finances. By following clear steps and using automation, you can turn a time-consuming task into a simple one.

Run your business, not your books. It’s that easy with Xero. Try Xero for free.

FAQs on accounts payable process

Here are answers to some common questions about managing accounts payable.

What is three-way matching in accounts payable?

Three-way matching helps you check that you’re paying the right amount for the right items. It involves comparing three documents: the purchase order (what you ordered), the goods receipt (what you received), and the supplier's invoice (what you're being billed for). If all three match, you can confidently approve the payment.

What does P2P mean in accounts payable?

Procure to pay (P2P) describes the entire workflow from finding and ordering goods or services through to making the final payment. It describes the entire workflow from finding and ordering goods or services (procurement) all the way through to making the final payment. The accounts payable process is a key part of the overall P2P cycle.

What happens if I don't follow a proper accounts payable (AP) process?

An inconsistent accounts payable process can lead to several problems. You might face late payment fees, damage relationships with your suppliers, or miss out on early payment discounts. It can also cause cash flow issues, make tax time harder, and raise the risk of paying duplicate or fraudulent invoices. Staying organised helps you spot unusual bills and protect your business.

How long should the accounts payable process take?

The time it takes depends on your business size, invoice volume, and approval workflow. The main goal is to be efficient and pay bills on time. Using accounting software can significantly speed up the process, reducing the time it takes to handle each bill from days to just minutes.

Can I automate accounts payable for my small business?

You can. Accounting software like Xero makes it easy to automate accounts payable so you can focus on running your business, not your books. You can automate tasks like capturing data from bills, sending them for approval, and scheduling payments. This saves a lot of time, reduces manual errors, and gives you better control over your spending.