Complete Guide to Accounts Payable Process

Without clear visibility into when payments are due or exactly how much you owe, your business can easily end up in constant firefighting mode–scrambling to cover unexpected cash shortages, delaying critical investments, and unintentionally straining relationships with vendors and suppliers.

A well-defined and efficient accounts payable process ensures you know what’s coming, can manage cash flow with confidence, and maintain strong, trust-based partnerships with those you do business with. In this article, we’ll walk you through how to streamline your AP process so you can save time, reduce errors, and protect your bottom line.

While you’re here, consider how Wise Business can simplify payments to vendors, especially those outside the UK. With Wise Business, you can hold and convert multiple currencies in one account, and send payments to suppliers in 140+ countries while avoiding hefty bank fees and delays.

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What is the accounts payable process, and how does it work?

The accounts payable (AP) process is a comprehensive system designed to help companies manage their short-term debts to suppliers and vendors. Also known as the "full cycle of accounts payable," this process covers every step from getting a purchase order (PO) to invoicing and making the final payments to your supplier.

Having an accounts payable (AP) process helps your AP department ensure that your vendors and suppliers get paid on time while ensuring that your company maintains a healthy cash flow.

Typically, here’s what a full cycle accounts payable looks like in practice:

• You send a purchase order to your vendor
• The vendor delivers goods and services and sends an invoice
• You check the delivered goods and services against the purchase order to ensure it is accurate
• You approve the invoice once the invoice received matches the goods and services delivered
• You authorise and send payments

For small businesses in the UK, an effective accounts payable process helps them track all outstanding bills and expenses, manage their finances, and send payments on time to vendors. This way, they can maintain a healthy cash flow, settle their payables efficiently, and maintain a strong relationship with their vendors.

Why is accounts payable process important for businesses?

Now that you understand how the accounts payable process works, let's examine why the accounts payable process is essential for your business and how it can benefit your organisation:

• Improves cash flow management: An effective accounts payable process can significantly improve your cash flow. You can accurately forecast your short-term debts to your vendors and plan how to pay them while still maintaining a good working capital. This strengthens your relationship with them and lets you negotiate favourable terms with your suppliers.

Additionally, having an effective accounts payable process enables you to pay your suppliers on time and avoid paying duplicate invoices using a strategy like the three-way matching. This means you incur no additional costs on your invoices by paying on time and vetting each payment before going out, thereby allowing you to have better cash flow.

• Mitigate financial risks: An effective accounts payable process minimises the risk of financial fraud, duplicate invoices, or unauthorised payments to vendors. It serves as an internal control system that your AP department and procurement team must follow before releasing payments to vendors. Additionally, there’s also a multiple-level authorisation to help mitigate fraudulent activities and unauthorised payments to ghost vendors.

• Avoid legal disputes and penalties: According to the UK Late Payments Laws, suppliers have the legal right to charge a statutory interest¹ when you pay your suppliers late. This means that your suppliers are entitled to claim interest on unpaid invoices for goods and services. Paying vendors on time helps you avoid incurring penalties from late payments. Also, the accounts payable process allows you to properly handle invoice disputes so it doesn’t escalate into a full-blown litigation.

• Ensure accurate financial reporting: Conducting accounts payable gives you an accurate picture of your company’s financial health and liquidity. It ensures that all your liabilities are accurately recorded, helping you keep an accurate and up-to-date financial record.

The accounts payable process and workflow - steps and components

Below is a full breakdown of the steps involved in a typical accounts payable workflow:

Step 1: Purchase request and authorisation

An accounts payable process begins when a department in your company identifies that it needs goods or services. For instance, if the marketing team needs a videographer to shoot a new campaign, they would have to make an internal request to the accounts payable or procurement team.

Making an internal request involves the department requesting the creation of a purchase requisition, a formal internal request to purchase the needed goods and services. The purchase requisition is then submitted to the procurement or finance team for approval.

Step 2: Sending the purchase order

Once a purchase requisition is approved, the finance or procurement team then goes ahead to create a purchase order, which will be sent to the vendor. A purchase order is a document that indicates items, quantities, prices, credit terms and types of goods and services that are to be purchased.

Purchase orders serve two primary purposes. First, it ensures that the goods and services ordered match the ones that are received from the vendor. Secondly, it serves as a legally binding contract between the buyer and supplier.

Step 3: Receipt of goods or services and invoice matching

Once the vendor delivers the requested goods or services, the accounts payable team will then inspect them against the original purchase order. They check quantities, examine the condition of items, and document any discrepancies or damage found during inspection.

Another essential aspect in this stage is matching your purchase order, delivery receipt, and your vendor's invoice. This verification process protects you from billing errors and ensures accurate payments.

There are two major matching systems:

• Two-way matching: This matching system compares the purchase order and the invoice.
• Three-way matching: This matching system compares the purchase order, delivery receipt, and invoice.

Step 4: Coding the invoice

After verifying the invoice, the next step is to record the invoice in the company’s accounting system. Your accounting system will then assign the appropriate general ledger codes to the invoice.

Step 5: Payment processing and reconciliation

At this stage, the company processes payments for the invoice per the payment terms agreed upon. After payment has been made, your accounts payable team then reconciles the payment with the invoice and updates the accounting system to reflect this.

Challenges of the accounts payable process

Here are some common challenges of accounts payable:

• Lack of visibility: Without real-time visibility, it would be difficult to monitor the status of each invoice and identify bottlenecks in your accounts payable operations. This could prevent the financial team from managing cash flow, ensuring timely payments, and making informed decisions. Tackling this problem with accounts payable software that provides an overview of your payables and allows custom reports enables you to make informed decisions based on accurate information.
• Poor communication with suppliers: Your suppliers want the assurance that their invoices will be received, tracked, and processed. However, maintaining good communication with multiple suppliers can be challenging, resulting in a lack of trust. However, leveraging email, messaging systems, and vendor portals can help you facilitate good communication with your suppliers. For instance, a centralised portal that allows suppliers to access payment status and other relevant details ensures smooth information flow between your financial team and your suppliers.
• Manual data entry error: Manually entering payment amounts, invoice numbers, and vendor information can result in data inaccuracies, which could lead to late payments and strained vendor relationships. To avoid this, consider using an automated invoicing tool to reduce the risk of error when processing your accounts payable.
• Fraud and security risks: Security threats, such as vendor impersonation, invoice fraud, and unauthorised access, can cause severe financial implications and reputational damage to businesses managing accounts payable. Companies can strengthen their security system with multi-factor authentication (MFA), secure payment options, regular software updates, compliance with data protection laws, and frequent transaction audits to detect anomalies.
• Receiving invoices from multiple channels: Manually handling invoices from various channels can be too chaotic for accounts payable managers to navigate. This could result in cash flow and financial problems. To tackle this problem, businesses can leverage a centralised system that collects and organises invoices from multiple sources, including emails, vendor portals, and scanned documents.
• Compliance risks: Another major challenge of accounts payable is the changes in tax codes, privacy statutes, and industry regulation standards. This is because not staying up-to-date with these regulations puts you at risk of noncompliance, such as hefty fines, litigation, and damaged reputation. One way to avoid these risks is to leverage accounts payable solutions with built-in compliance features.

How to improve the accounts payable process?

Here are some practical tips to improve your company's accounts payable process:

• Automate your invoice processing: Instead of preparing and sending invoices manually, consider using accounts payable software to make this process seamless. This software helps you reduce processing time, reduce errors from manual data entry, and speed up the entire process of preparing and sending an invoice.
• Optimize your approval workflow: Use modern accounts payable AP software to streamline your approval workflow and make it seamless. This software program lets you easily route invoices to appropriate approvers based on predefined rules. Additionally, you can gain real-time visibility into pending approvals and where the invoice sits in the approval chain.
• Leverage early payment discounts: Using electronic payment methods, such as Bankers Automated Clearing Services (BACS) transfers and Faster Payments Service (FPS), makes payment settlement faster and more efficient. Unlike paper checks, which require printing, mailing, and manual processing, electronic payments are processed instantly and reduce the risk of errors or delays.

Send international payments with Wise Business

Open a Wise Business account and you’ll be able to pay suppliers in their own currency. You can send Euros, USD or 40+ other currencies in just a few clicks.

Disclaimer: Invoicing features are only available with Wise Business Advanced, which you can access for a one-time fee of £50.

You can easily make batch payments when paying multiple vendors at once, and even automate the process using the Wise API to save even more time.

Wise payments are fast and fully secure (even for large amounts). Best of all, you’ll only pay low, transparent fees and always get the mid-market exchange rate.

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*Disclaimer: The UK Wise Business pricing structure is changing with effect from 26/11/2025 date. Receiving money, direct debits and getting paid features are not available with the Essential Plan which you can open for free. Pay a one-time set up fee of £50 to unlock Advanced features including account details to receive payments in 22+ currencies or 8+ currencies for non-swift payments. You’ll also get access to our invoice generating tool, payment links, QuickPay QR codes and the ability to set up direct debits all within one account. Please check our website for the latest pricing information.

FAQs - accounts payable process

What are the most significant risks in a manual accounts payable process?

The manual accounts payable process puts you at risk of data entry errors and duplicate or late payments. Using this process is also labour-intensive, requiring a significant amount of manpower to handle invoices, enter data manually, route documents for approval, and file paperwork. This consumes the time that your AP team could have spent on more productive activities.

What's the best way to handle invoice approval workflows efficiently?

One effective way to handle invoices is by using automation software to optimize your approval workflows. Automating some of the most time-consuming aspects of your invoice approval workflows not only saves time but also reduces the possibility of errors and enhances fraud detection.

Here are some ways you can improve your invoice approval workflow using automation software:

• Use Optical Character Recognition (OCR) scanning to convert paper invoices to a digital format and automatically capture key data like invoice numbers, PO numbers, supplier information, line items, and amounts.
• Create automated approval workflows that route invoices to appropriate approvers without manual intervention.
• Set up automatic follow-up notifications for approval delays
• Implement a self-service system that allows vendors to input and update their information, thereby reducing administrative tasks on your accounts payable team.

How to handle exceptions and discrepancies in the AP process?

When handling exceptions and discrepancies in the AP process, start by thoroughly reviewing the invoice to understand the issue and reassure the vendor or client that it will be resolved promptly. Investigate the root cause without assigning blame, then correct the problem internally to prevent future errors.

You should also communicate the resolution clearly and professionally. If necessary, you can offer discounts or incentives to maintain the relationship.

Is it possible to completely eliminate paper from our accounts payable process?

Yes, it’s entirely possible to eliminate paper from the accounts payable process by transitioning to a fully digital workflow. This involves using electronic invoicing (e-invoices), automated AP software for approval workflows, secure digital document storage, and electronic payment methods like ACH or wire transfers.

Streamline your accounts payable with Wise Business

Wise Business makes it easy to pay vendors, especially for international payments. With a Wise Business account, you can hold and exchange 40+ currencies all in one place. You can also send payments to 140+ countries, making it simple to pay your suppliers anytime, anywhere.

Sources used in this article:

Sources last checked 23/09/2025