What is the accounts payable workflow? 5 ways to improve it

Managing finances effectively is crucial for any business, and a significant part of that is handling accounts payable. The accounts payable workflow, specifically, is the backbone of how companies pay their bills. 

Yet, according to QuickBooks' Business Solutions Survey, 95% of respondents report challenges with their current digital business solutions. 

This widespread dissatisfaction highlights the need for streamlined, efficient processes. Without a well-defined accounts payable workflow, you might face late payments or strained vendor relationships. 

This article will delve into every aspect of the accounts payable workflow, from its basic steps to optimization strategies. 

How does the accounts payable workflow work?

7 steps in the accounts payable workflow

Benefits of an accounts payable workflow

5 ways to improve your accounts payable workflow with Intuit Enterprise Suite

Common challenges in the accounts payable workflow

Boost productivity and enhance profitability

How does the accounts payable workflow work?

An accounts payable workflow is the series of steps a business follows from the moment it receives an invoice to the moment the invoice is paid and recorded. 

It's a structured approach designed to ensure that all invoices are legitimate, accurate, and timely. 

This process involves careful verification, approval routing, and secure payment methods. It moves the process from invoice receipt to payment.

Who manages an accounts payable workflow?  

The accounts payable department, often a part of the larger finance or accounting team, typically manages this workflow. In smaller businesses, it might be a single individual, such as an office manager or bookkeeper. 

Larger organizations might divide the responsibilities among several roles:

• Accounts payable clerk: Handles day-to-day tasks like data entry and invoice processing.
• Accounts payable specialist: Focuses on more complex tasks, such as resolving discrepancies and managing vendor relationships.
• Accounts payable manager: Oversees the entire department and ensures compliance with company policies.
• CFO or controller: Provides high-level oversight and strategic direction for the finance function.

Common documents in the accounts payable workflow

Several key documents are integral to a smooth accounts payable process:

• Purchase order (PO): A document the seller issues to the buyer authorizing a purchase.
• Invoice: A bill from the seller to the buyer detailing the goods or services provided and the amount due.
• Receiving report: A document confirming that the customer has received the goods or the business has rendered the services.
• Payment voucher: An internal document authorizing payment to a vendor.
• Check or electronic payment confirmation: Proof of payment to a company.

7 steps in the accounts payable workflow

While seemingly straightforward, the accounts payable workflow is a multi-stage process that requires careful attention to detail. It's more than just paying bills; it's about ensuring accuracy, maintaining vendor relationships, and controlling your company's cash outflow. 

Breaking it down into these seven distinct steps helps visualize the entire process and highlight areas for improvement.

1. Invoice receipt and intake

The workflow begins the moment an invoice arrives. This could be through various channels—a physical invoice in the mail, an emailed PDF, or even a submission through an online vendor portal. 

The key here is having a systematic way to receive and initially process all incoming invoices, regardless of their format. A designated email address (e.g., ap@yourcompany.com) or a central physical inbox will help prevent invoices from getting lost or overlooked.

2. Invoice data capture and coding

Once received, the crucial information from the invoice needs to be extracted and entered into your accounting system. This includes data points like:

• Vendor name and ID: Ensuring you're paying the correct entity.
• Invoice number: A unique identifier for tracking.
• Invoice date: Important for payment terms and aging reports.
• Due date: Crucial for timely payment and avoiding late fees.
• Amount due: The total amount to be paid.
• Line item details: Descriptions of goods or services, quantities, and unit prices.
• General ledger (GL) codes: Assigning the expense to the correct accounting category.

3. Invoice matching (three-way matching)

This is arguably the most critical step for ensuring accuracy and preventing fraud. Three-way matching involves comparing the invoice to two other key documents:

• The purchase order (PO): Did we authorize this purchase? Does the invoice match the agreed-upon price and quantity?
• The receiving report: Did we actually receive the goods or services in the quantity and condition we expected?

Verifying these three documents against each other will help you identify any discrepancies before payment is made.

4. Invoice approval routing   

Once the invoice has been matched and verified, it needs to be approved for payment. The approval process will vary depending on your company's internal controls and the size of the invoice.

Smaller invoices might be approved by a single AP clerk, while larger amounts may require multiple levels of authorization, perhaps from a department head, manager, or even the CFO.

5. Payment scheduling

After approval, the invoice is ready to be scheduled for payment. This involves considering the vendor's payment terms (e.g., Net 30, Net 60, Due Upon Receipt) and your company's cash flow situation. Strategically scheduling payments allows you to maximize early payment discounts (if available) while maintaining sufficient cash on hand.

6. Payment execution

This is the actual disbursement of funds to the vendor. Common payment methods include:

• Checks: Traditional, but becoming less common due to processing time and security concerns.
• Automated Clearing House (ACH) transfers: Electronic payments directly from your bank account to the vendor's.
• Wire transfers: Faster but often involve higher fees.
• Virtual cards: Single-use digital cards that offer enhanced security and control.
• Credit cards: Using a business credit card.

The best method will depend on the vendor's preferences, the payment amount, and your company's policies.

7. Record keeping and reconciliation 

The final step is meticulous recordkeeping. All documentation related to the invoice—the invoice itself, the PO, the receiving report, proof of payment, and any communication with the vendor—should be securely stored and easily accessible. This leads to more efficient:

• Audits: Provide a clear audit trail for internal and external auditors.
• Reporting: Generate accurate financial reports.
• Vendor inquiries: Quickly resolve any questions or disputes that may arise.
• Reconciliation: Balance the accounts payable ledger with payments made.

Benefits of an accounts payable workflow

Implementing a structured accounts payable workflow isn't just about following a set of procedures; it's a strategic move that can positively impact various aspects of your business. It moves beyond simply paying invoices and provides broader advantages. 

An efficient accounts payable workflow contributes significantly to overall financial health, efficiency, and vendor relationships. Here are the key benefits to consider:

• Enhanced accuracy: Reduces errors like incorrect data entry, duplicate payments, and missed invoices through checks and balances.
• Improved efficiency: Automates tasks, freeing up the AP team for more strategic activities.
• Stronger vendor relationships: Ensures timely payments, fostering trust and potentially leading to better terms.
• Optimized cash flow: Provides better visibility into payment obligations for improved forecasting and planning.
• Reduced risk: Minimizes fraud and compliance issues through implemented controls and documentation.
• Better cost control: Prevents overpayments and late fees and facilitates spending analysis.
• Improved financial visibility: Provides a clear audit trail and data for accurate reporting and decision-making.

5 ways to improve your accounts payable workflow with Intuit Enterprise Suite 

Optimizing your accounts payable workflow goes beyond just paying bills on time. It's about gaining greater control, visibility, and efficiency across your entire financial operation. 

Intuit Enterprise Suite is a financial management solution that offers a range of features specifically designed to transform your AP process from a manual, error-prone task into a streamlined, strategic function. Here are five key ways to leverage the software for improvement:

1. Consolidate and centralize with multi-entity management

For businesses with multiple entities, locations, or subsidiaries, accounts payable can feel like juggling chainsaws. Intuit Enterprise Suite's multi-entity management features bring order to the chaos. Instead of separate systems and endless spreadsheets, you get a single, unified platform that can: 

• Manage users and permissions: Control access and streamline workflows from a single sign-in.
• Automate intercompany transactions: Create intercompany transactions with automatic eliminations, saving time and reducing errors.
• Generate consolidated reports: Gain a holistic view of your AP across all entities with consolidated reporting.

2. Enhance decision-making with multi-dimensional reporting  

Accurate and timely reporting is crucial for effective AP management. Intuit Enterprise Suite's multi-dimensional reporting capabilities empower you to:

• Generate standard and custom reports: Access pre-built reports or create custom reports with up to 20 dimensions to analyze your AP data in detail.
• Categorize data by line item: Gain granular insights by categorizing data across payments and accounting by individual line items.
• Prepare investor-ready reports.

This level of reporting detail allows you to identify trends, track key metrics, and make more informed decisions about your spending, vendor relationships, and overall financial strategy.

3. Leverage AI-powered automation and insights

Manual data entry and repetitive tasks are the bane of any AP department. Intuit Enterprise Suite tackles this head-on with its AI-powered workforce automation. This translates to:

• Automated bill and payment matching: Significantly reduce manual work and human error.
• Streamlined bill creation: Use bulk uploads and email forwarding for pre-filled bills.
• Data-driven recommendations: Get AI-powered insights for resourcing, budgeting, and project planning.

Think about automatically recording and matching bills and payments. Features like bulk uploads and email forwarding for pre-filled bills further streamline the process. And it's not just about automation; the software also provides AI-driven recommendations, helping you make smarter decisions based on real-time data.

4. Streamline approvals and payments 

Managing the approval process and ensuring timely payments are critical for maintaining good vendor relationships and a healthy cash flow. Intuit Enterprise Suite puts you in control. 

Integrated payment and bill pay options offer several advantages:

• Customizable approval workflows: Tailor approval processes to your specific needs.
• Accelerated payables and receivables: Streamline payments with integrated workflow automation.
• Advanced payment scheduling: Schedule payments up to 90 days in advance for better cash flow management.

5. Integrate payroll, HR, and compliance

Accounts payable shouldn't be an island. Intuit Enterprise Suite recognizes this by integrating with other crucial business functions. Connecting your AP data with payroll, HR, and compliance tools eliminates data silos and reduces the need for manual data transfer. 

Key integrations include:

• Payroll and HR: For accurate team pay and efficient time tracking.
• Compliance tools: With access to HR advisors and resources.
• Employee benefits: Making it easier to offer competitive packages.

Imagine a seamless flow of information, from employee time tracking to payroll processing, all linked to your core accounting data. This integrated approach provides a holistic view of your business, empowering better decision-making across the board.

Common challenges in the accounts payable workflow 

While a well-designed accounts payable workflow offers numerous benefits, the reality is that many businesses struggle with recurring challenges. These aren't just minor inconveniences; they can significantly impact efficiency, accuracy, and even vendor relationships. 

Know the common pain points so you can find effective solutions.

Manual data entry 

One of the most pervasive challenges is the continued reliance on manual data entry. It's a task that's both inherently prone to human error and time-consuming, with businesses spending as much as 25 hours per week on manual data entry, according to our Business Solutions Survey. 

Think about it: transposing numbers, misreading handwriting, or simply overlooking a crucial detail on a lengthy invoice—these mistakes happen easily. 

The consequences, however, can range from incorrect payments to strained relationships with valued suppliers, not to mention the time spent correcting those errors.

Missing invoices 

Invoices can arrive from various sources, like email, physical mail, and online portals. Without a streamlined, centralized system for intake, it's surprisingly easy for an invoice to get lost in the shuffle. A misplaced paper invoice or an overlooked email can lead to late payment fees, missed opportunities for early payment discounts, and a headache when it comes time to reconcile accounts. 

The seemingly simple act of properly receiving the invoice is often a major point of failure. 

Approval bottlenecks 

Even if an invoice is received and entered correctly, it can still get stuck in the approval process. This often happens when approval workflows are poorly defined, overly complicated, or simply not followed. 

Imagine an invoice sitting on someone's desk (or in their inbox) for days or weeks while the payment due date looms closer. Chasing down approvers and managing exceptions becomes a full-time job in itself, pulling AP staff away from other critical tasks.

Inconsistent information 

Three-way matching—comparing the invoice, purchase order, and receiving report—is essential for accuracy. But what happens when those three documents don't agree? 

Discrepancies in quantity, price, or even item description can derail the entire process. Resolving these issues often requires manual investigation, back-and-forth communication with vendors, and a significant time investment. 

Lack of visibility 

Without a clear, real-time view of the entire accounts payable process, it's like flying blind. You can't easily track where invoices are in the workflow, identify bottlenecks, or monitor key performance indicators. 

This lack of visibility makes it difficult to manage cash flow effectively, proactively address potential problems, and make informed decisions about your spending.

Too many apps

Many businesses today suffer from "app overload" because they’re using a multitude of separate software applications for different aspects of their operations. 

This can be particularly problematic for the accounts payable workflow. 

You might have one app for invoice scanning, another for approvals, a separate accounting system, and yet another for payment processing. This fragmented approach leads to:

• Data silos: Information is scattered across different systems, making it difficult to get a complete picture of your AP process.
• Manual data transfers: Data often needs to be manually exported and imported between apps, increasing the risk of errors and wasting valuable time.
• Integration headaches: Getting different apps to "talk" to each other can be a complex and costly undertaking.
• Increased costs: Paying for multiple software subscriptions can add up quickly.
• Unused software: You may have unused subscriptions that you forgot about.

Boost productivity and enhance profitability

Conquering the accounts payable workflow is a strategic imperative that directly impacts your bottom line. Implementing the strategies and best practices outlined in this article can help you transform your AP process from a potential source of errors and inefficiencies into a driver of productivity and profitability.

Ready to take the next step and streamline your accounts payable workflow? Explore Intuit Enterprise Suite and discover how automation can revolutionize your processes.