What is Accounts Payable (AP), it’s Purpose, Process and What Tools are Used?

Current accounts payable purposes and processes

Accounts Payable or AP as it is also known, is a term used to describe the means of money being owed by a business to it’s suppliers for goods and services provided. An Accounts Payable (AP) department within a business might be made of a single individual to many tens of people. The main responsibility and duties of an AP department can vary but broadly speaking, this consists of making sure that purchase invoices received from suppliers are processed, approved and paid in an accurate and timely manner.

In accounts payable departments that are not using any automation to aid their processing or approvals process, whilst the steps they follow may vary, in most cases the following 6 steps will be followed:
This image helps to visualise the existing manual AP process.

Step 1 – Capturing of the supplier issued Purchase Invoice (Invoice Capture)

A means of having one centralised location for incoming invoices either paper scanned invoices, supplier issued email invoices or true e-invoices. It is the job of the team to collate all purchase invoices so that they are acknowledged as received by the business, typically called ‘Invoice Register’. This can be as simple as a paper log, to an excel list of invoices or simply entering into an accounting system like Sage, NetSuite, Xero or QuickBooks for example, as having arrived.

Step 2 – Purchase Invoice fraud and duplication reference check – See (Types of Invoice Fraud)

A means of confirming that the business has not received this invoice from the supplier previously, known as a ‘Duplicate Invoice’. This process means validating in the current received and not yet processed invoice list as well as reviewing the previously received, processed and paid invoice list to ensure this is a truly unique invoice.

This process is closely following by a bank fraud check, this is to confirm the payee details listed on the purchase invoice match those stored against the supplier record in the accounting system. This is very common due to growing fraudulent activity, meaning a simple eyeball check by the accounts payable team can route out any fraudulent invoices. According to UK Finance statistics, almost £1.2billion was lost in 2023 due to invoice fraud taking place.  See Compleat FAQ Help guides for more information Compleat FAQ

Step 3 – Purchase Invoice matching – Also known as Purchase to Pay (P2P)

This is a step on which an invoice received is validated against a corresponding purchase order and/or purchase receipt to ensure that the invoice being billed correctly corresponds to the original order and that goods were indeed delivered. Common scenarios that can occur in an unautomated solution is the buyer not quoting the PO number to the supplier, the supplier not quoting this purchase order number on the invoice or the invoice values, quantities or other line information being inaccurate known as a mismatch.

Once an invoice has been offered up for matching, typically the AP team are aware due to the original corresponding purchase order number, who ordered the goods, what they ordered and the expected delivery data and values for this, simplifying the decision-making process for AP.

Step 4 – Non-PO Purchase Invoice

A step which covers invoice processing where a purchase order number is never required, this can mean a business that does not have a PO process at all or commonly, types of goods or services where a PO would typically not be required, this can include aspects like utility bills and postage costs.

This step requires the AP team to decide who may have ordered the goods that are being invoiced, where the invoice lines need to be coded to and who may need to approve the invoice for posting into the accounting system and payment. See Compleat FAQ guides on setting supplier defaults (Non PO processing)

Step 5 – Purchase Invoice approvals

A step which requires one or many dedicated authorisers, to view the invoice and make a decision to approve or deny the request. This approval can simply be an acknowledgement from the buyer that goods were indeed delivered in addition, it can be a senior manager’s approval of payment for the said value in readiness for payment.

Step 6 – Registering of Purchase Invoice into the accounting solution as ‘Posted’

This is typically the final step whereby a Purchase Invoice becomes fully ready for payment upon the agreed due date. Once an approver has authorised this, if the AP team has already registered the invoice in the accounting system as described in Step 1, then this will be now marked as posted rather than draft, whereas, if the AP team used an alternative invoice registration process such as excel, they will now register the invoice in readiness for payment with all required coding.

Now all of the above seem to make logical sense and for most users in finance, this will be a very familiar process but how does automation help the process above?

What is AP Automation?

AP Automation helping to simplify processes

AP Automation describes software and solutions that aid the retrieval, registration, processing, approval, and payment of purchase invoices. Whilst there are many tools available, it is important to acknowledge that for first time users of AP Automation this can be a daunting task. Accounts Payable has been a human driven and controlled process since the evolution of paper. So, it makes sense that users will be cautious and, therefore, selecting the right tools that allow automation to be introduced at the businesses own pace is important.

As we break down the steps of automation, simply put, the best most controlled AP departments that exist today are moved into an automated solution allowing users to select which parts of automation they wish to use.

Again, to aid visualising this, here is an image illustrating the current manual steps and how automation can help users move onto this digital transformation journey.

Automation Step 1

An invoice can be automatically received from suppliers in a modern system, invoice data is captured using Artificial Intelligence (AI) and Machine Learning (ML) including all header and line fields. Be sure to check if your provider is using data entry processors to manually key invoices, as this can be prone to error and not cost effective.

See Invoice Capture for how Compleat automates invoice capture.

Automation Step 2

Invoices can be automatically checked to validate it is unique and has not been received previously including in the accounting system, at the same time, the supplier’s banking information can also be validated to confirm that the information held matches that listed on the purchase invoice document.

See our blog on Types of Invoice Fraud as well as our FAQ guides.

Automation step 3

The invoice is offered for matching where a purchase order number is listed and either auto matching will take place or in the event of a variation, exception management steps will take place. In the event of no purchase order number being present, automatic coding of the invoice can take place and made ready for approval.

See our guide to P2P for more information

Automation Step 4

AP Automation solutions can automatically detect where to send an invoice for approval to one or many named individuals or groups of individuals based on the rules setup for the business. These rules can include department, nominal coding and value-based thresholds, in some more advanced solutions like Compleat, simultaneous approval capability exists. Approvals can also be carried out via desktop, phone or tablet.

See our benefits section of invoice approval automation

Automation Step 5

Integration of the approved invoice into the accounting system takes place. This is typically the final step prior to payment and ensures that the purchase ledger is true and accurate reflecting the full approved invoice attributes both header and line.

See Compleat list of supported accounting software integrations

For more information on selecting the right AP automation software solution and the different checks that would be useful, check out our Blog here Beginners guide to AP Automation

Furthermore, AP Automation can be taken one step further with Online Buying capability

If this capability is not on your requirements list – it should be!

Gain full visibility and control over spend before it takes place, buying online directly from your suppliers’ websites is something your users already do, you just don’t know about it.

Integrated Online Buying delivered through Compleat’s Purchase Order Automation software solution, dramatically increases the value of Accounts Payable Automation for the entire business by saving you time and money.