How to create the ideal accounts payable process

‍

How do companies ensure bills get paid on time? The accounts payable approval process makes it happen—but inefficiencies often bog down the process, causing delays and headaches. This guide breaks down why AP matters, the challenges it faces, and how to streamline it with modern solutions.

What is the accounts payable approval process?

The AP approval process refers to the series of steps undertaken by the AP team to validate and authorize supplier invoices for payment. This process starts with the receipt of the invoice from the vendor and concludes once the vendor invoices are paid. Stages of the AP process:

• Invoice receipt: Upon delivery of goods and services as specified in the purchase order (PO), the buyer generates a goods receipt note (GRN). Subsequently, the supplier prepares the invoice, detailing the quantity, unit cost, total cost, and delivery specifics. The invoices are then sent to the accounts team.‍
• Invoice matching and validation: Invoices are cross-checked against the purchase order (PO) and goods receipt note (GRN) through 3-way matching to confirm payment is only for received goods or services. This matching process is crucial for avoiding discrepancies but is time-consuming for accounts teams.‍
• Review and approve: Once the 3-way match is complete, the accounts team verifies the data. Any issues are flagged for the procurement manager or sent back to the supplier for corrections. Approved invoices proceed to payment processing.
• ‍Create an invoice in the accounting system: Approved invoices are entered into the accounting system, creating a clear audit trail for tracking and compliance.‍
• Vendor payment: The finalized, approved invoices progress to payment processing, marking the culmination of the AP approval process.

‍

Tips for how to improve and create the ideal accounts payable process

Efficiency in accounts payable starts with adopting smart, actionable strategies. Here’s how to take your AP process to the next level:

How can strategic invoice management improve cash flow?

What you can do: Prioritizing invoice payments based on terms and early payment discounts helps optimize cash flow and strengthen vendor relationships.

‍

Why it works: Paying invoices strategically keeps cash flow healthy, avoids late fees, and allows businesses to leverage vendor incentives. Timely payments also ensure a steady supply chain by strengthening trust with suppliers.

‍

According to research by Ardent Partners, processing a single invoice cost an average of $10.18 in 2023, up 10% from 2022 due to inflation and labor costs. By streamlining workflows with AP automation software, businesses can reduce these costs and free up cash flow for more strategic uses.

‍

Also, make sure to pay attention to:

• Early payment discounts: Capitalize on vendor discounts for early payments to save costs.
• Invoice terms: Organize payments by due date to avoid late fees or damaged supplier relationships.

How can you catch discrepancies before they cost you?

What you can do: Regularly reconciling bank accounts ensures every transaction aligns with your records. This step helps identify discrepancies—like duplicate payments or missing funds—before they spiral into costly errors.

‍

Why it works: Reconciliation is a foundational accounting practice that ties financial activity to recorded transactions. It provides an up-to-date snapshot of your cash flow, uncovering inconsistencies caused by manual errors, system glitches, or fraud.

‍

By staying on top of your cash flow by reconciling accounts frequently, even with automated payment systems, this step helps catch discrepancies, detect unauthorized charges, and maintain financial accuracy.

How can you reduce the risk of fraud in your accounts payable process?

What you can do: Fraud prevention starts with robust internal controls, like restricting system access and separating duties. By ensuring no single person has end-to-end control over the invoice approval process, you safeguard your finances.

‍

Why it works: Segregation of duties prevents potential misuse of authority, while controlled access limits exposure to sensitive financial systems. This approach creates multiple checkpoints, minimizing the likelihood of errors or fraud slipping through.

‍

According to the ACFE, on average, fraud cases go undetected for about 12 months. Of the 43% uncovered through tips, more than half came from employees. This highlights the importance of proactive measures—fraud detection is valuable, but prevention through strong controls is even better.

‍

Here’s how you can protect your AP workflow by setting clear internal controls:

• Control access: Limit access to your accounting system based on employee roles. Only grant permissions necessary for tasks like invoice approval or payment processing to reduce fraud risks.
• Segregate duties: Ensure no single person handles the entire AP process. For example, the accounts team member approving payments shouldn’t also perform the 3-way match. Even for small teams, separating responsibilities adds a critical layer of security.

How do you stop duplicate payments from hurting your bottom line?

What you can do: Automating invoice matching helps flag duplicate or suspicious entries, ensuring payments only go out once.

‍

Why it works: Manual invoice tracking often leads to duplicate payments due to human error or mismatched invoice details. AP automation solves this by cross-referencing invoice data with purchase orders and receipts in real time.

‍

Duplicate invoices with similar amounts can easily slip through manual processes. Use AP automation tools to flag potential duplicates before issuing payments. Fixing overpayments later is time-consuming and often requires extensive vendor follow-up.

What’s the easiest way to eliminate inefficiencies in invoice approvals?

What you can do: Automated workflows route invoices to the right approvers and send reminders to reduce delays. This eliminates bottlenecks from manual follow-ups and missing paperwork.

‍

Why it works: Accounts payable automation ensures every invoice follows a predefined approval path. By replacing manual back-and-forth with automated system-triggered actions, approvals happen faster, and accountability improves.

‍

Here’s how you can automate your AP process:

• Simplify 3-way matching for invoices, purchase orders, and receipts.
• Automatically route invoices to approvers with reminders to avoid delays.
• Reduce repetitive tasks, freeing up your accounts team to focus on strategic projects.

How can you measure and improve your AP process over time?

What you can do: Tracking KPIs for AP, like invoice cycle time and processing costs, reveals inefficiencies and creates opportunities for continuous improvement.

‍

Why it works: When you know how long it takes to process an invoice or how much each one costs, you can identify bottlenecks. This data allows for targeted improvements in areas like approval speed or cost management.

‍

Monitor key performance indicators like the following to refine your AP workflow:

• Invoice cycle time: Understand how long it takes from invoice receipt to payment.
• Processing costs: Track the cost of handling each invoice to identify inefficiencies.

How can clear authorization and approval policies strengthen your AP workflow?

Understanding the difference between authorization (granting spending limits or budget approvals) and approval (verifying transactions against policies and documentation) is crucial for ensuring compliant financial operations.

‍

What you can do: Define who can authorize budgets and approve transactions, ensuring clear roles and segregation of duties. This creates multiple layers of accountability in your AP process.

‍

Why it works: Separating authorization (budget-level approvals) from transaction approvals ensures multiple checkpoints for accuracy and legitimacy. This reduces the risk of errors, fraud, and unauthorized spending. Clear policies also improve internal compliance, supporting smoother audits and minimizing disruptions.

Manual AP invoice approval process

Managing the AP approval process manually presents significant challenges for the AP department. As per findings from Payables Friction Index survey, nearly 44% of companies report that they continue to receive invoices via fax, making tracking and organizing them time-consuming and inefficient.

‍

Manual invoice approval workflows also drive up costs and increase the risk of errors, from missed details to duplicate payments.

‍

Some of the most common issues with manual AP workflows include:

• Manual data entry errors
• Delays in invoice approval
• Inaccurate reporting
• Missed discounts

‍

The best advice? Find the right AP invoice automation solution for your business.

The difference between an automated workflow and automated processing

Optimizing your accounts payable process also means understanding how to set it up effectively. But first, it’s important to understand the difference between automated workflows and automated invoice processing:

• AP workflow: The sequence of steps in accounts payable, from routing invoices to the right approvers to final approval.
• AP processing: The execution of tasks within that workflow, such as reviewing, validating, and approving invoices.

‍

For a deeper dive into each and how they work, check out our detailed guide on setting up automated workflows and understanding automated invoice processing.

Build the ideal accounts payable approval process with Ramp

Ramp’s accounts payable software automates your entire accounts payable workflow so every bill is recorded, approved, and paid without any data entry or repetitive tasks.

‍

Minimize the risk of fraud and payment errors. Ramp’s AP platform identifies duplicate invoices, routes approvals, and performs 2-way matching with purchase orders.