What is an accounts payable (AP) policy?

An accounts payable (AP) policy is a set of guidelines you follow to manage how your company processes, approves, and pays invoices.

Your company probably has broader finance policies covering budgeting, financial reporting, and strategic planning. Your AP policy gets into the operational details. It's the difference between having a general "be responsible with money" philosophy and having specific rules.

For example, your AP policy might require director approval for all invoices over $5,000 or mandate that you process payments within 30 days of receipt.

An AP policy also functions as a foundational internal control. It helps you prevent fraud, catch errors, and keep financial processes running smoothly by turning a potentially disorganized workflow into a predictable system.

Who uses an accounts payable policy?

Your AP team, department managers, finance leaders, and auditors all rely on your accounts payable policy:

• AP department: Follows these rules daily while processing invoices and issuing payments
• Department managers and approvers: Use the policy to know when they need to sign off on expenses
• CFO or controller: Relies on it to maintain financial oversight and compliance
• Auditors: Review your AP policies to verify you have solid controls in place and you're actually following them

Why accounts payable policies and procedures matter

Without a clear accounts payable policy, you're vulnerable to late payments, fraud, cash flow problems, and regulatory penalties. A well-defined AP policy gives you the financial control and compliance structure you need to avoid these risks.

Here’s why every company should have a clearly defined AP policy:

• Reduces errors and prevents fraud: Structured policies enforce invoice verification, approvals, and segregation of duties to minimize risk
• Ensures timely and accurate payments: A clear AP process helps track due dates, avoid late fees, and maintain vendor relationships
• Strengthens cash flow management: Defined payment schedules align outgoing payments with revenue to prevent shortages
• Supports audit readiness: Policies ensure documentation and compliance with laws like Sarbanes-Oxley (SOX)
• Improves negotiation power: Paying vendors on time builds trust and may lead to better payment terms

Your AP policy should address these common pain points:

• Unclear ownership and approval limits: Clear authorization matrices define who can approve at different thresholds
• Weak three-way matching processes: Policies require matching POs, receipts, and invoices before payment
• Vendor onboarding gaps: Policies ensure vendors submit required tax forms up front to avoid 1099 errors
• Exception handling ambiguity: Defined escalation rules resolve disputes and missing documentation consistently
• Manual reconciliation inefficiencies: Automated matching reduces manual work while improving accuracy
• Missing audit trails: Documented workflows generate audit trails that support compliance and reviews

Accounts payable policies and procedures

You need to understand the difference between policies and procedures to build an accounts payable function that actually works.

Policies are your rules and controls—the "why" and "what" behind your AP operations. They set spending limits, approval requirements, and compliance standards. Procedures are your step-by-step tasks—the "how" that guides daily work. They tell your team exactly which forms to complete and which workflows to follow.

You'll need to document both your policies and procedures, enforce them consistently, train your staff regularly, and review everything annually to keep up with business changes and regulatory requirements.

Core accounts payable procedures

These core procedures form the foundation of your AP operation and help you manage vendor payments without errors or delays:

• Intake: Define invoice channels (email, portal, EDI, mail) and required fields
• Verification and matching: Use 2-way or 3-way matching to confirm accuracy before payment
• Approvals: Route invoices by coding, budgets, and dollar thresholds
• Payment runs: Process payments on set schedules and capture early-pay discounts
• Exceptions and write-offs: Document how to handle disputes, discrepancies, and small write-offs
• Vendor onboarding and maintenance: Collect tax forms (e.g., W-9), verify banking info, and update vendor records
• Record retention and audit trails: Maintain documentation and electronic records that support payments and audits

What to include in your accounts payable policies and procedures

Your AP policy controls vendor payments, prevents errors, and strengthens internal controls. If you're creating or refining one, here are the core components to include:

Purpose

This section defines why the policy exists and its objectives. A clear purpose creates consistency, reduces risk, and supports compliance.

Example:

"The purpose of this accounts payable policy is to establish guidelines for invoice approval, payment scheduling, fraud prevention, and compliance with regulatory requirements."

Scope

The scope defines who and what the policy applies to. It helps you avoid any confusion about which transactions, employees, and departments are governed by the policy.

Without a clearly defined scope, employees may apply the policy inconsistently or assume certain transactions fall outside its rules. This could lead to missed compliance requirements or unauthorized payments.

Example:

"This policy applies to all employees involved in purchasing, invoice processing, approvals, and vendor management across all business units and subsidiaries."

Roles and responsibilities

Detailing who's responsible for what in the AP process creates accountability. It typically includes roles such as:

• Accounts payable team: Verifies and processes invoices
• Department managers: Approve expenses and verify invoices
• Finance leadership: Oversees compliance and approves large payments
• Vendors: Provide complete and accurate invoices

Clearly defining roles prevents confusion over who is responsible for approvals, payment processing, and fraud prevention. Without this section, employees might assume someone else is (or isn't) handling a task, leading to delays, duplicate payments, or fraud risks.

Example:

"The accounts payable department is responsible for verifying and processing all vendor invoices. Department leaders must approve expenses before payments are issued. Finance leadership oversees compliance and approves payments above $10,000. Vendors must submit invoices with complete information to receive payment."

Approval hierarchies and limits

Clear approval hierarchies prevent unauthorized spending while keeping operations moving smoothly. Set dollar thresholds that match your organizational structure, and establish the iron rule of no self-approval: every expense needs eyes from someone at the appropriate level or higher.

Build in cross-functional requirements where specialized knowledge matters, such as having the legal department review significant contracts or IT approve software purchases that could impact security or compliance.

Emergency situations will arise, so define exactly when expedited approvals are acceptable and who can authorize them. Document these exceptions thoroughly to maintain your audit trail and prevent abuse. The key is balancing control with practicality. Your approval structure should protect the company without creating bottlenecks that frustrate legitimate business needs.

Here's an example of dollar threshold approval requirements:

Invoice processing, approval, and dispute resolution

Your policy should outline the step-by-step process for organizing invoices, approval workflows, and resolving discrepancies. Key elements include:

• Invoice requirements: Include purchase order number, detailed line items, tax amounts, and payment terms on every invoice. Vendors can submit through your AP email inbox, online portal, or EDI system.
• Matching requirements: Purchase order-backed invoices need three-way matching against the PO and receiving documents. Service invoices only require two-way matching since there's no delivery to verify.
• GL coding guidelines: Assign responsibility for coding invoices to the correct general ledger (GL) accounts and departmental allocations. A reference chart mapping common purchases to their appropriate codes helps maintain accuracy.
• Approval timelines: Approvers have a certain number of business days to review invoices, with automatic escalation to backup approvers or department heads for delays. Clear timeframes prevent bottlenecks that damage vendor relationships.
• Dispute resolution: When invoices don't match expectations, follow a documented process from initial vendor contact through final resolution. Keep all correspondence, revised invoices, and supporting receipts throughout the dispute.

A clear, standardized process reduces errors, prevents overpayments, and ensures you handle disputes efficiently without delaying payments.

Example:

"All vendor invoices must be submitted electronically with a unique invoice number, itemized charges, and clear payment terms. Finance team must code invoices to proper GL accounts. Invoices over $5,000 require department head approval within 2 business days. A 3-way matching process (invoice, purchase order, and receiving document) must be completed before processing. Any disputed invoices must be escalated to the AP team within 5 business days for resolution."

Payment processing and vendor management guidelines

Define how and when payments are made and which payment methods are allowed. It should also explain how vendors should be onboarded, verified, and monitored to reduce fraud and maintain compliance. Key components to outline include:

• Default terms: Set standard payment terms such as net 30 for most vendors, and establish your approach to early-pay discounts. For example, evaluate whether 2/10 net 30 offers provide enough savings to justify accelerated payment schedules.
• Payment process: Define how often you run payments and establish clear cutoff times for each payment cycle. Document your standards for remittance advice, including what information to include and how to deliver it to vendors.
• Payment methods hierarchy: Prioritize ACH transfers as your default since they’re cost-effective and trackable. Reserve wires for urgent or international payments and use checks only when no electronic option is available.
• Vendor onboarding: Collect required tax forms (W-9 for domestic vendors, W-8 for international ones) and verify tax identification numbers (TINs). Set up systems to track which vendors need 1099 forms at year-end. Verify banking information through out-of-band confirmation, especially when vendors request changes to their payment details.
• Vendor maintenance: Schedule periodic reviews of your vendor master file to keep information current. Implement change management controls that require proper authorization and verification before updating vendor payment information or terms.

Managing payments and vendors together ensures only verified vendors get paid, payments go out on time, and you minimize financial risks.

Example:

"Payments will be issued on a net 30 basis via ACH unless otherwise specified. Payment runs occur on the 10th and 25th of each month. All vendors must complete a W-9 form before receiving payments. Vendor information will be reviewed annually to ensure compliance."

Vendor communication standards

Setting specific response times for different types of inquiries helps vendors know what to expect, while secure verification processes for banking changes prevent costly payment mistakes. Standard templates for common communications such as remittance advice and dispute letters save time and maintain consistency across your team.

Document the steps for handling vendor requests, especially sensitive changes like updated payment information. This creates accountability and reduces risk. Templates also help newer team members communicate professionally with vendors while maintaining your organization's preferred tone and including all necessary information.

Example:

"The accounts payable department will respond to vendor inquiries within 2 business days for general payment questions and within 4 hours for urgent payment disputes affecting current-day processing. All requests to modify vendor banking information must be verified through telephone contact to a number previously established in our vendor master file. AP staff will not accept banking changes submitted solely via email, fax, or postal mail. The requesting vendor representative must provide their full name, title, and account number during phone verification."

Risk management, fraud prevention and compliance

Outline measures to prevent fraudulent payments, duplicate invoices, and unauthorized transactions. Common controls include segregation of duties so that no one person can create, approve, and pay vendors. They may also include vendor verification, bank account verification, and approval thresholds.

Paying the same invoice twice is surprisingly common, especially in high-volume environments. Your system and procedures should include automated flags that check invoice numbers, amounts, and vendor combinations. You should also create tolerance rules that catch invoices with identical or very similar amounts from the same vendor within specified timeframes.

You'll also need to meet financial reporting and tax obligations. Key compliance areas to outline include:

• IRS reporting: Providing 1099-NEC forms to vendors if payments exceed $600 ($2,000 starting in 2026)
• Regulatory compliance: Adhering to SOX and other financial laws
• Tax compliance: Correct sales tax and VAT reporting
• Sanctions screenings: If your business operates internationally or with government contracts

Example:

"Invoices exceeding $10,000 require dual approval from both the department head and CFO. The AP team will conduct quarterly audits to identify duplicate payments or suspicious transactions. All vendor payments exceeding $600 annually will be reported on IRS Form 1099-NEC to ensure tax compliance."

Write-off procedures and exceptions

Your write-off procedures should establish clear thresholds, typically $25 or less for small balances and credits older than 12–18 months. This gives your team permission to clean up the books without getting bogged down in endless paperwork for insignificant amounts.

Documentation requirements vary by company size and audit needs, but generally include supervisor approval for amounts under $100 and manager approval for larger write-offs. Your GL treatment should specify which expense accounts to use and whether to track write-offs separately for reporting purposes.

Exception processes handle those inevitable situations where invoices don't match purchase orders perfectly or approval workflows break down.

Example:

"Small balance write-offs of $25 or less require supervisor approval and brief documentation of the business reason. Stale credits over 18 months old may be written off to miscellaneous income with department manager approval. All write-offs must include the original invoice number, vendor name, and reason code."

Record keeping and policy review

A retention policy ensures you store invoices, approvals, and payment records securely and digitally, typically for at least seven years, to meet audit, compliance, and financial tracking needs. An annual policy review schedule, maintained by the accounts payable team, ensures your AP policy stays current with regulatory changes and best practices.

The policy should also outline audit trail requirements, including who approved the payment, timestamps, and where you've stored the evidence. Be sure to specify which team members can manage and access financial records.

Example:

"All invoices, payment records, and approvals must be stored for a minimum of seven years. Digital copies will be maintained by AP team managers for easy retrieval. This AP policy will be reviewed annually to reflect changes in business needs and regulatory requirements."

Steps to create your accounts payable policy

1. Outline sections and owners

Start with a complete table of contents that covers all essential areas from invoice processing to vendor management. Assign each section a specific owner who'll be accountable for its development and completion.

Set realistic due dates that factor in content complexity and competing priorities across your team. This front-end planning creates accountability and helps you track progress as the policy takes shape.

2. Map intake-to-pay workflow

Your current process from invoice receipt through final payment contains valuable insights about what works and what doesn't. Create visual diagrams that illustrate both your existing workflow and your ideal future state.

System touchpoints and handoffs between your departments often reveal the biggest opportunities for improvement. This mapping exercise frequently uncovers inefficiencies and gaps that your new policy can address.

3. Define matching rules (2-way or 3-way)

Different spend categories carry different levels of risk, which means you need different invoice matching approaches. Start by determining when invoices require purchase order matching versus independent processing based on your risk tolerance and operational needs.

PO-backed purchases, services, and recurring expenses such as utilities require specific handling rules. Document any exceptions and the approval process required for overriding standard matching requirements.

4. Set approval hierarchies and limits

Your spending thresholds should align with your organization's risk tolerance while supporting day-to-day operations. Test these limits against typical invoice amounts to verify they make practical sense for your business.

Design approval workflows that prevent bottlenecks while maintaining the controls you need. Set up backup approvers and delegation rules so processes keep moving when primary approvers take time off.

5. Codify payment terms and schedules

Document your standard payment terms for different vendor categories and invoice types. Create early payment discount guidelines that help your team decide when these opportunities provide genuine value to your organization.

Set clear payment run schedules, cutoff dates, and urgent payment procedures. Well-defined timing expectations help vendors plan their cash flow and reduce the volume of payment status inquiries you receive.

6. Document tax and 1099 requirements

Outline your process for collecting W-9 forms from new vendors and W-8 forms from international suppliers. Your TIN-matching procedures should include steps for handling discrepancies that arise during the validation process.

Form 1099-NEC reporting has specific qualification criteria that your team needs to understand. Establish your year-end process for generating and distributing forms with clear deadlines and responsible parties to avoid compliance issues.

7. Establish exceptions and write-offs

Set clear dollar thresholds for different types of exceptions and write-offs along with required documentation. Match your approval requirements to the financial impact and risk level of each exception type.

Define escalation procedures for amounts that exceed standard thresholds and create clear GL posting rules. This approach prevents small discrepancies from consuming disproportionate time while maintaining the oversight you need.

Accounts payable policy template

Use this template as a starting point for your own accounts payable policy.

Purpose

This policy establishes procedures for processing vendor payments to ensure timely, accurate, and compliant transactions while protecting cash flow and reputation.

Scope

This policy applies to all company entities and AP transactions, including invoices, reimbursements, and vendor payments.

Roles and responsibilities

The AP team processes invoices and prepares payments. Department managers approve expenses within their area. The CFO approves payments over $10,000.

Invoice intake

All invoices must be submitted electronically through the designated system. Required fields include invoice number, date, due date, amount, and payment terms. Paper invoices are scanned and entered by the AP team.

Invoice matching

PO-backed invoices require 3-way matching (invoice, purchase order, receiving documentation). Service invoices require two-way matching (invoice and approval).

Approval requirements

Invoices must be approved according to the company’s authorization limits. Self-approval is prohibited. Emergency procedures cover urgent cases requiring expedited processing.

Payment terms and methods

Default terms are net 30. Early payment discounts are evaluated before use. ACH is the preferred method; wires are reserved for urgent or international payments. Checks are used only when electronic options aren’t available.

Exceptions and write-offs

Discrepancies under $50 may be approved by a department manager. Write-offs of $50–500 require CFO approval; over $500 requires board approval. All exceptions must include documentation and GL coding.

Vendor onboarding

Vendors must provide W-9 or W-8 forms and pass TIN verification. Banking details are verified securely. The vendor master file is reviewed annually.

Record retention and audit trail

AP records must be retained in digital format for at least seven years. Documentation includes approval history, payment authorization, and supporting evidence.

Policy review

The finance department reviews this policy annually and updates it as needed.

How AP automation can strengthen AP policy compliance

An AP policy only works if consistently enforced. Manual processes often create errors, delays, and compliance risks. The best AP automation software addresses these challenges with:

• Invoice processing: Automated intake captures invoices, OCR extracts key fields, and duplicate detection flags issues early
• Approval management: Configurable workflows route invoices by business rules, with role-based limits and SLAs to keep approvals on track
• Invoice verification: 2-way and 3-way matching compare invoices to POs and receipts, with tolerance settings for approved variances
• Vendor management: Onboarding workflows collect required forms and verify bank account changes to prevent fraud
• Payment execution: Scheduled runs capture discounts while maintaining segregation of duties between processors and authorizers
• Reporting and compliance: Complete audit trails track every action, while ERP sync and 1099 support keep records accurate and compliant

Together, these features reduce financial risks, strengthen compliance, and improve AP efficiency.

Why Ramp Bill Pay is the best way to manage AP for growing organizations

Ramp Bill Pay is an AI-powered accounts payable software designed to address the most common and time-consuming AP challenges. Whether it’s capturing invoices, automating approvals, or reconciling payments, Ramp digitizes every step and integrates with your ERP—helping your team close the books with greater speed and accuracy.

Unlike outdated systems that struggle with rigid integrations, inconsistent purchase order matching, and fragmented workflows, Ramp Bill Pay delivers end-to-end automation that adapts to your needs. Every invoice and payment is tracked for maximum visibility and oversight, so you’re always in control from submission to settlement.

Ramp continues to be recognized as one of the easiest AP software tools to use based on G2 reviews (as of June 5, 2025). With over 2,000 reviews and an average 4.8/5 star rating, finance professionals across industries rely on Ramp to eliminate repetitive tasks, prevent costly mistakes, and keep accounts accurate. As one G2 user put it, Ramp is a game changer for corporate cards and bill pay.

Why AP operations often get stuck

Most accounts payable teams face three major bottlenecks:

• Manually resolving discrepancies between purchase orders and invoices
• Delays from approvals sitting idle in managers’ inboxes
• Duplicating data entry to keep ERP records up to date

Ramp Bill Pay removes these pain points with a comprehensive suite of AP tools:

• Automated approval flows with smart routing and custom user roles
• AI-backed invoice reading and GL code recommendations
• Full visibility and oversight across AP, procurement, and expense processes
• Multi-bill payments, recurring vendor scheduling, and payment status monitoring
• Direct ERP integration that synchronizes with NetSuite, QuickBooks, Xero, and others
• Versatile payment options including ACH, physical checks, card, and domestic or international wires
• Real-time 2-way matching between invoices and purchase orders

Organizations in every sector choose Ramp for their AP automation and control. Here are a few examples:

• Mix Talent transitioned from BILL to Ramp and now spends just 15 minutes on accounts payable each cycle
• Skin Pharm reduced their approval timelines from weeks to just 48 hours
• The Second City processed bills 2x faster with accurate OCR

Why make Ramp Bill Pay your AP solution?

Ramp Bill Pay isn’t just another software—it’s setting the standard for what top-rated AP automation should deliver. With intelligent AI, seamless ERP connectivity, and workflows designed for real teams, Ramp empowers you to move faster and with fewer errors every month. You can get started on Ramp for free, then upgrade to $15/user/month plans or request custom enterprise pricing.

Ready for a better way to manage AP? Get started with Ramp Bill Pay.

The information on this page is for informational purposes only and does not constitute legal advice.