How to manage your accounts payable process successfully

An air-tight AP process doesn't just prevent errors and delays — it unlocks substantial benefits for your bottom line. Follow these steps to reap those benefits.

Step 1: Establish a clear workflow

Having a clear, standardized workflow for handling invoices from receipt through payment is critical for effective accounts payable management. An ad-hoc approach without a defined process inevitably leads to lost invoices, duplicative payments, and other costly errors.

Your AP workflow should map out precise responsibilities and handoffs for each step, such as:

• How invoices are initially captured (email, scanning, etc.)

• The routing path for coding and approval

• Authentication and verification checkpoints

• Final approval prior to payment processing

• Payment scheduling and execution

• Record keeping and auditing

By codifying these steps into a repeatable workflow, you establish clarity and accountability. Everyone knows their role and responsibilities. You can also analyze the workflow to identify bottlenecks and optimize for faster processing times.

When it comes to capturing invoices, the best practice is to go paperless where possible. Electronic invoices received via email avoid getting lost. If you must use paper invoices, high-speed scanning devices or smartphone apps will digitize and upload invoices into a centralized software. This creates a secure repository and jump-starts the workflow.

Step 2: Implement a formal approval process

A formal approval process will help you catch errors, prevent unauthorized payments, and maintain internal controls. Paying invoices without any verification opens the door to fraud, overpaying, duplicates, and other costly mistakes. An AP approval workflow is a critical checkpoint before disbursing funds.

There are different approval models to consider:

• Single-approver workflows route all invoices to one authorized person for final sign-off. This keeps things simple but concentrates responsibility

• Multi-level approvals introduce additional layers of reviewers, which are useful for higher dollar amounts or invoices requiring cross-functional input.

• Rules-based workflows allow you to customize the approval criteria. For example, you can require manager approval for invoices above $5,000 while lower amounts just need department head signoff, or you can route invoices from certain vendors to specific subject matter experts.

The right approval setup provides accountability while not bogging down processes unnecessarily.

Step 3: Leverage automation technology

Modern accounting software will help you eliminate manual, paper-based AP processes, automate tasks, and drive efficiencies.

Robust accounts payable automation software accelerates invoice processing times while reducing errors. The software handles routine tasks like data entry, coding, and approval routing automatically based on pre-defined rules and workflows. No more lost invoices, missed due dates, or double payments slipping through the cracks.

Optical character recognition (OCR) automates data capture and eliminates time-consuming tasks like keying in invoices line-by-line. The invoices get digitized, data is extracted into the system fields, and the approvals start flowing, so you get full visibility into the AP pipeline anytime.

Additionally, accounting software enables interoperability with other core software, including ERP integration. This eliminates disjointed manual handoffs between software that can cause breakdowns.

Step 4: Prioritize vendor relationships

Strong vendor relationships are key for accounts payable success. When you pay vendors on time every time, you build trust, which can lead to more favorable payment terms, priority treatment, and smoother communication. Your vendors will appreciate the certainty and are more willing to work with you.

On the flip side, a reputation for late payments and unresponsiveness will hurt your standing. Vendors may cut off credit terms, rush orders, or deprioritize your business entirely, which can impact your bottom line.

To foster good vendor relationships, negotiate early payment discount terms, which helps incentivize paying invoices quickly. A PYMNTS article on AP automation says this strategy is underutilized, with inefficient AP processes causing most businesses to miss out on supplier early payment discounts.

According to the article, 27% of surveyed firms using a spend management system say they take advantage of early payment discounts offered by suppliers “all the time.” That means 73% are leaving potentially significant money on the table because they can’t rein in their payment workflows. With early payment discounting, you'll save money while demonstrating your reliability.

Another piece of advice to improve vendor relationships is to implement clear touchpoints and communication protocols so your vendors know their invoices are received and the status is transparent.

Step 5: Implement internal controls

Without proper checks and balances, your AP function is vulnerable to risks like inflated invoices, payments to ghost vendors, unauthorized purchases, and the misappropriation of funds.

Robust internal accounting controls will help you maintain the integrity of your accounts payable process and protect against fraud, errors, and abuse.

One foundational control is establishing segregation of duties so that no single person controls the entire AP process. Responsibilities like invoice receipt, coding, approval, and payment execution should be divided across multiple employees or departments. This prevents any one bad actor from overriding the process.

Strict approval workflows with anti-tamper controls are also essential. Set amount-based approval thresholds, implement maker-checker processes, and require multi-party sign-offs. This will help you catch illegitimate invoices before payment.

When it comes to securing AP documentation like invoices and receipts, you’ll want to limit who can view/edit files, leverage cloud storage with audit trails, and retain records per your organization's data policies.

Step 6: Regularly reconcile accounts

Reconciling accounts payable on a consistent basis is critical for maintaining accurate financial records and catching any discrepancies before they snowball. The reconciliation process involves meticulously verifying that money leaving your AP accounts matches what was recorded in your accounting software.

Without diligent reconciliation, issues like unrecorded liabilities, missed payments, and errors can easily go unnoticed. This erodes the accuracy of your books and provides an incomplete picture of cash flow. Over time, these disconnects make financial reporting and decision-making increasingly unreliable.

Conversely, routinely reconciling AP accounts allows you to identify discrepancies when they are easier to investigate and remediate. You can determine the root cause — whether it's duplicate payments, missed invoices, or other process breakdowns — and correct it quickly.

Accounting automation software with robust reconciliation capabilities will streamline much of this process. The software matches transactions against the expected activity, surfacing exceptions through auto-generated reconciliation reports. Organizations leveraging such technology will replace cumbersome manual reconciliation with a more modern continuous close process.

The right technology, processes, and controls can help transform your accounts payable function from a back-office headache to a strategic asset. Here are four key benefits of an automated accounts payable process:

Improved cash flow management

An automated AP process allows for far better control and optimization of your cash outflows. With automated invoice processing, payment workflows, and clear approvals, you can precisely manage the timing of when funds leave your accounts, which enables smarter cash positioning and forecasting rather than money unnecessarily sitting idle or creating a cash crunch.

Further, efficient AP workflows allow you to take advantage of early payment discount offers from suppliers, which can be a significant source of savings. By paying invoices as soon as approved, you can reliably capture discounts without worrying about delays.

Reduced errors and fraud

Automation and robust internal controls are central to minimizing errors, overpayments, and exposure to fraudulent activity. Digital invoice processing with data capture prevents manual entry mistakes, and enforced approval workflows with segregated duties prevent unauthorized payments or fund misappropriation.

By reducing human touches and catching exceptions through system checks, you substantially minimize your risk. This frees up AP staff to focus on higher-value activities instead of resolving preventable errors.

Enhanced vendor relationships

One of the core responsibilities of an AP team is to ensure the business can pay off its debts, and that’s critically important for building vendor relationships. When you demonstrate the ability to reliably receive, process, and pay invoices in a timely, transparent manner, you build credibility and trust with suppliers.

They gain confidence in your financial management capabilities, which can translate into more favorable payment terms, prioritized treatment, or even early access to new products and services. A reputation for poor AP management can strain some of your most business-critical relationships.

Even having the ability to pay suppliers with a credit card can expedite payments and win over your vendors.

Increased productivity and efficiency

By automating routine tasks like invoice capture, coding, approval routing, and payment scheduling, AP departments can operate with maximum efficiency. Processes are streamlined into smooth, digitized workflows with full visibility.

Automation handles the busywork while staff oversee the exceptions through configurable dashboards. This allows the team to redeploy resources toward higher-value tasks like optimizing payment timing, process improvement, spend analysis, and strategic vendor management.

“With Brex, we’ve seen a huge shift in accounts payable from being a back-office data entry function to a powerhouse of information that creates a decision maker and stakeholder.” — Tiffany Miller, Director of Accounts Payable, Empire Portfolio Group

To truly upgrade accounts payable processes, it’s important to understand the challenges preventing businesses from reaping those benefits.

Lack of automation

An Aberdeen Group survey found that the average time to process an invoice manually is 14.6 days, meaning suppliers may have to wait weeks to get paid. Those manual, paper-based accounts payable procedures are delaying critical payments and potentially causing errors. From physically routing invoices for approvals to manually entering data into accounting software, these tedious tasks drain staff productivity and increase the risk of mistakes. Without automation, AP teams struggle to keep up with high invoice volumes and approval workflows.

Limited resources

Limited staff bandwidth for accounts payable duties is a problem for smaller businesses or those with lean accounting and finance teams. Employees may be juggling AP responsibilities alongside numerous other tasks, making it difficult to stay on top of invoice, approval, and payment processes and increasing the likelihood of things slipping through the cracks.

Poor communication with vendors

Unclear or delayed communication with suppliers regarding invoices and payments can strain those relationships. Late payments, unanticipated short-pays, and surprise charges can ignite frustration and distrust on both sides. Suppliers may cut off terms, rush orders, or deprioritize your business entirely when invoices aren't processed reliably.

Establishing clear expectations, payment schedules, and open communication channels with vendors is crucial. Dedicated vendor portals, automated payment notifications, and transparent AP processes can go a long way.

Security concerns

According to a survey from the Association for Financial Professionals, 80% of companies experienced payments fraud in 2023.

AP processes inherently require handling sensitive financial data and documentation. Lost invoices, unauthorized access, or unsecured transmission/storage create serious security implications, so robust data security protocols are essential.

Best practices include secure cloud storage with granular access controls, documented audit trails, and strict credentialing procedures. Physical documents should be secured, and email and other file transfers should use encryption. Diligent internal accounting controls also help prevent fraud.

To efficiently scale AP operations, reduce overhead, save money, and minimize exposure to risk, you need the right mix of people, processes, and technologies.

Invest in AP automation software

Investing in a AP automation solution is the most effective way to drive efficiency and cost savings. By digitalizing the entire invoice processing workflow — from data capture to approval routing to payment execution — you’ll eliminate tedious manual tasks, accelerate productivity, and reduce errors that lead to overpayments or missed discounts. The ROI comes from labor savings, early payment discounts captured, reduced late fees, and better cash management.

Implement strong internal controls

Establishing and adhering to rigorous accounting internal controls will help minimize fraud and error risks in accounts payable. This includes instituting procedures like segregation of duties across invoice receipt, coding, approval, and payment processing steps. Regular reconciliation between AP records and bank transactions and statements ensures accurate accounting and surfaces discrepancies early. Clearly defined approval workflows with amount-based thresholds help prevent unauthorized or improper payments, and strong access controls also safeguard sensitive AP data.

Outsource routine tasks

For organizations with limited accounting staff, outsourcing routine AP tasks like data entry can be a cost-effective solution. By partnering with third-party service providers, non-critical but time-consuming activities get handled affordably without tying up internal resources. This allows internal staff to focus on higher-value functions.

Effectively managing your accounts payable process is far more than just paying bills. It's a strategic imperative that directly impacts your company's financial health and operational efficiency.

A well-managed AP process improves your cash flow, enhances vendor relationships, and frees up your finance team to be more proactive and strategic. By establishing clear workflows, implementing robust approval processes, and leveraging AP automation technology, you gain control over every invoice from receipt to payment.

Perhaps the biggest gain you’ll make is efficiency. Companies can't afford the inefficiencies, risks, and missed opportunities that come with outdated AP practices. Modernizing your accounts payable is essential for maintaining a competitive edge in today's fast-paced business environment.

Ready to see these transformative benefits in action? See a demo to experience how Brex's state-of-the-art accounts payable automation software can revolutionize your AP processes.