Accounts payable process: Explaining the full cycle

Accounts payable is a core function of your accounting workflow. When considering how to manage these functions, internal controls and other safeguards can be important in preventing fraud.

Streamlined and updated AP processes are crucial to keeping an accurate balance sheet and making timely payments to vendors. As a business owner, making sure your AP department is efficiently working can mean early payment discounts and a reduced risk of fraud or duplicate payments.

What is accounts payable?

Accounts payable departments are responsible for processing invoices and vendor payments. When your company purchases any services or items from a supplier, that is tracked within accounts payable (also known as B2B payments). The full accounts payable workflow (or accounts payable cycle) often includes three primary documents that check accuracy: receiving reports, purchase orders (POs), and vendor invoices (you can learn more about the difference between and purchase order and an invoice here).  These documents will help track the details of the orders, such as the number of items purchased, the vendor name, unit costs, goods receipts, and vendor bank account details if necessary.

Accounts payable teams bill payments to vendors, process payroll, and ensure rent and other bills get paid on time. Careful data entry and calculations are vital to the accuracy of a company's financial statements and consistent audit trails. AP teams can often play a role in relationships with vendors as well.

Accounts payable vs. accounts receivable

While both core functions of accounting, accounts payable and accounts receivable are opposite in their roles. While the accounts payable department focuses on paying invoices and other bills, the accounts receiving department ensures that all incoming payments to the company are accurate and delivered on time. So, if a client was to buy an item or service from your company and you sent an invoice to them, the AR department would handle that workflow and tracking.

Is accounts payable a liability?

Accounts payable are a liability account, and credits to them are considered company assets. That means that when using double-entry accounting, you will first debit the appropriate account you paid for your services, such as a purchasing account, then credit your AP account. Eventually, once you have paid for that purchase, you will debit your AP account and credit something like the company's cash account if you paid through a cheque. Other types of ledger accounts may be debited or credited, depending on the transaction and how your company paid it.

Ensuring accuracy with three-way match

There are different ways that account payable departments check and match invoices. Some companies prefer to use two-way matching, which only involves matching an invoice with a purchase order, but other companies prefer three-way matching. In three-way matching, you look at the invoice and compare it to the purchase order and the receiving report (alternatively, the goods receipt or order receipt). By checking these items against each other, you prevent fraudulent invoices and avoid human error.

Company purchase order

A purchase order is a legally binding document that details the goods or services you want to buy. Often this document includes agreed-upon pricing, quantity, product details, and other factors that may be important to track. POs are helpful to you for tracking and help vendors when referencing your order to ensure you get the items or services you need.

Company receiving order

Once you receive the order that you sent a purchase order for, you will fill out a receiving report or receiving order. This document should include the quantity of the item received, any needed details about the goods, and any notes of damage or issues with the shipment. Not all companies take the time to create receiving orders, meaning they often will use two-way matching rather than three-way matching.

Vendor invoice

The vendor invoice is the invoice you receive for a set of goods and services. Comparing the vendor invoice to your purchase order is one of the essential steps to three-way matching, as discrepancies if found, are often between the agreed upon price and the price of the vendor invoice. The vendor invoice also helps you pay your bill to the vendor at the end of the process.

Three-way match exceptions

There are many different exceptions you may see within three-way matching. As mentioned previously, a common discrepancy is between the vendor invoice and the original purchase price. This exception often occurs due to shipping prices or taxes, which suppliers don't always include within the original pricing. You may see other abnormalities, such as over- or under-shipping, where you receive a different quantity from what you agreed upon, or honest data entry issues from the vendor within their invoice.

Why internal controls are important

Internal controls are the processes put in place to help fight fraud and prevent inaccuracies. In an accounting department, these controls are absolutely essential to protect a company's assets and ensure compliance with federal, local, and state laws. As an accounting team, setting up a stringent set of internal controls ensures that your data is reliable for financial analytics and audits and prevents vendor and invoice fraud.

Preventing paying fraudulent invoices

Unfortunately, many criminals will attempt to trick companies with false invoices. Sometimes this is done by a company you have worked with, but it also can occur when a complete stranger sends an invoice to your company. The perpetrator hopes that your accounting department won't notice that they never ordered the goods or services within the invoice and will automatically pay the amount billed. By implementing even just two-way matching or other internal controls, you can easily spot these fraudulent invoices.

Spotting inaccurate invoices

Another scenario that can occur is when you receive an invoice from a legitimate vendor that you ordered items from, but the invoice is inaccurate. This inaccuracy can be very harmless such as incorrect data entry, or it can, unfortunately, be malicious. By carefully comparing purchase orders with vendor invoices, you can prevent accidentally overpaying.

Preventing invoice double payments

Without proper protocols, accounting teams can accidentally double up on payments. Human error happens, especially if your workflow doesn't clearly communicate when a team member prepares to pay an invoice. Implementing software or internal control protocols to prevent this can keep your team from costly accidents.

Ensuring all vendors are paid on time

Internal controls aren't only in place to prevent accidents or fraud. These steps can also help your team work more efficiently. It isn't hard to accidentally miss a vendor payment when overloaded with invoices and tasks. Internal controls can help implement guidelines and safeguards to ensure your vendors are paid consistently and on time.

Setting up internal processes to reduce risk

There are a few ways that setting up internal control processes can reduce risks for your company. Unfortunately, sometimes those risks are internal rather than external. By setting up a few carefully planned internal processes, you can help prevent highly damaging fraud.

Segregation of duties

A standard internal process for accounting is called the segregation of duties. This process divides your team into having one of three roles: tracking assets, having custody over assets, and authorizing asset use. By separating these specific roles, you not only are making sure there is oversight anytime you use these assets but prevent internal fraud through the separation of power.


Vouchers help prevent unapproved cash withdrawals. When new supplies are needed, purchases go through a document-backed voucher system to ensure that employees can't order items without approval and that all cash transactions go through the correct channels. Vouchers are essential, especially for companies that commonly require large department orders so that branches aren't ordering without going through the proper official channels.


Accounting teams process payments using either manual data entry or accounting software that assists in this process. AP automation can help employees keep more accurate track of expenses and cash flow and can help automatically pay invoices by their due dates. By preventing manual data entry errors and saving time for employees, they can focus on more critical tasks.

Routable can help improve internal controls and prevent fraud through features like robust bill payment approvals to help control disbursements and full audit trails for all of your transactions. By cutting out many manual entries, automation can help ensure that transactions correctly get recorded, preventing costly mistakes. To learn how we can help your accounting team work more efficiently, contact us for a demo.


Recommended Reading


How does ACH compare to a physical check?

When it comes to B2B payment methods, two widely used options are ACH checks and physical checks. Learn the differences and benefits of each.


Flat-file and API data integrations: What accounting teams need to know

FTP integrations and API can help your accounting teams manage their data entry workflows. But what is the difference between them? Learn more.