AP invoice automation insights by Medius

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What is the Full Cycle of the Accounts Payable Process?

In order to analyze and optimize your accounts payable processes, it's important to make sure you fully understand the complete accounts payable cycle.

Businesses worldwide operate based on the expenditure cycle and the revenue cycle. The full cycle accounts payable process falls under the broader expenditure and purchasing cycle. The process includes the complete range of essential accounting activities needed to complete a purchase when an order is placed and the customer receives the desired product or service.

The full cycle of accounts payable process includes approving invoices, matching invoices and vendor records, issuing checks, and recording all payments. The full cycle accounts payable process differs from what in accounts payable is known as P2P (procure-to-pay). P2P covers the cycle from vendor maintenance through procurement and invoice processing to payments to external vendors. AP automation streamlines these processes and ensures a higher level of accuracy throughout every step of the process.

Get to Know the Basic AP Cycle

The basic accounts payable cycle includes three significant documents – purchase order, receiving report, and vendor invoice. To initiate a purchase, the purchasing department of an organization sends a PO to a vendor that includes the requested merchandise, quantity, and price to trigger an order. Then, when the business receives the goods, a receiving report documents the shipment, including any damages or quantity discrepancies. The vendor invoice is sent by the vendor to request payment for the goods or services provided. Accounts payable receives vendor invoices and the payment process commences.

Accounts payable automation flow

General AP Procedures

Creating a guide to AP processes and procedures helps reduce errors. Adopting AP automation solutions can help to prevent these errors. In the comprehensive guide, describe procedures such as:

  • Receive vendor invoices and performing a three-way match for consistency against purchase order, goods receipt, and invoice
  • AP to verify receipt of the goods or service to approve the invoice for payment
  • If variances arise, such as the wrong quantity or price, accounts payable sends the invoice to the accounts receivable department, who works to find the source of the issue
  • After the invoice is vouched by the AP department and all variances are addressed and corrected, checks and payments are promptly issued
  • Once payment is sent, the invoice is marked as paid

The Breadth of the AP Process

AP encompasses almost all the payments a business makes, except for including payroll. It is crucial to have accuracy in vendor data maintenance and payments to avoid losses and problems. The main goals are to only pay legitimate and accurate invoices (what the company ordered, received, accurate costs, quantities, terms, etc.) and find savings opportunities where available, such as early payment or dynamic discounting. AP automation seamlessly establishes internal controls to avoid paying fraudulent or inaccurate invoices and ensure all invoices are accounted for.

The full cycle AP process is an integral part of a company’s financial statements and efficiency is required every step of the way.  Consider double-entry accounting and how omitting a vendor could lead to two incorrect amounts for two accounts. The ramifications of liabilities and repair versus prevention through the smart implementation of AP automation can be costly. For example, compromised vendor relationships can lead to production and supply problems, creating tiers of potential loss.

Additional AP Process Considerations

Some companies use vouchers during the approval process. Not all vendor invoices have purchase orders or receiving reports, making the traditional three-way match impossible. Other payments that may need special verification include monthly payments such as lease agreements and contracts to ensure all payments rendered are legitimate and accurate. With Machine Learning of data capture/processes, when something unusual comes into the process, automation can learn from how it is handled and make meaningful suggestions in the future to do it that way automatically.

Spend and cash flow can vary based on the time of year. AP automation provides detailed reports to help organizations better manage the full AP cycle in tight times. Also, AP automation facilitates the full cycle accounts payable process for the highest level of efficiency and accuracy. The savvy use of technology eliminates unnecessary errors, streamlines processes, and helps companies boost the bottom line. And failing to adopt automation today can mean getting left behind tomorrow.

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