According to a 2024 Deloitte report, companies lose up to 25% of potential savings each year due to inefficient accounts payable processes. Late payments, missed discounts, and manual errors all add up, hurting vendor relationships and cash flow.

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In this article, we’ll break down what accounts payable really means for your business, why getting it right matters, and how to make your AP process faster, more accurate, and easier to manage.

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What is an AP Process?

The accounts payable (AP) process manages how a company handles payments to vendors for goods and services. It covers invoice verification, approvals, and payment processing, ensuring accurate records, on-time payments, and compliance with financial policies.

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Importance of Creating an AP Process

A well-defined AP process ensures timely payments, accurate records, prevents fraud, saves costs, improves cash flow, enables better decisions, strengthens vendor relationships, increases efficiency, supports growth, and manages risks.

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Creating a standardized AP process is crucial for several reasons:

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1. Ensures timely payments: 

A well-defined AP process ensures that invoices are paid on time, helping you avoid late fees and maintain good relationships with your vendors. Late payments can strain vendor relationships and even result in service disruptions or supply chain issues.

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2. Accurate financial records: 

With a consistent process for handling invoices, you can ensure that your financial records are accurate and up-to-date, making it easier to track expenses and prepare financial statements. This is particularly important for compliance with tax regulations and financial reporting requirements.

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3. Prevents Fraud: 

A standardized AP process with proper controls and approvals can help prevent fraudulent activities, such as duplicate payments or payments to fictitious vendors. This is crucial for protecting your company's financial assets and reputation.

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4. Increased cost savings:

An efficient AP process can help you take advantage of early payment discounts, avoid late fees, and reduce manual effort and errors, leading to significant cost savings over time. By automating parts of the process and streamlining workflows, you can reduce the time and resources required to manage accounts payable.

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Stages of the Accounts Payable Process

A well-structured accounts payable (AP) process keeps your payments accurate, on time, and fully compliant. Below are the main stages of the AP process, showing how each step connects in the broader procure-to-pay cycle.

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Stage 1: Purchase Order Creation and Approval

Every AP process starts with a purchase order (PO). Once a department identifies the need for a product or service, a purchase order is created detailing the quantity, pricing, payment terms, and delivery timeline.

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The PO then moves through a purchase order approval workflow, where department heads or finance teams verify the request against budgets and company policies.

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A well-managed purchase order process creates accountability, prevents duplicate orders, and sets the foundation for accurate invoice matching later in the cycle. When approved, the PO is shared with the vendor officially starting the procure-to-pay cycle.

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Stage 2: Goods Receipt and Three-Way Matching

After the vendor delivers the goods or completes the service, the company generates a Goods Receipt Note (GRN) to confirm that the order was fulfilled as requested.
Next comes the invoice matching process, which ensures that all details align before any payment is made. There are several matching methods:

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• Two-way matching: Compares the vendor invoice with the PO.
• Three-way matching: Adds the GRN to confirm delivery before payment.
• Four-way matching: Includes an additional layer of quality or inspection verification for high-value items.

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Accurate PO invoice matching and GRN matching help prevent duplicate payments, pricing errors, and fraudulent invoices.

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Stage 3: Invoice Receipt

The AP team receives invoices from vendors through various channels mail, email, or electronic data interchange (EDI). Having a designated system or portal for collecting invoices keeps records organized and prevents delays in processing.

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Modern finance teams often automate this step to capture invoice data in real time, reducing manual entry errors.

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Stage 4: Invoice Verification

Once invoices are received, they go through invoice verification to confirm that all information matches the approved PO and GRN.

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This step checks for issues like incorrect quantities, price mismatches, or unauthorized purchases. Verifying invoices early ensures only legitimate and accurate invoices move forward for approval.

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Stage 5: Invoice Approval

After verification, invoices are sent through the approval workflow. Depending on your company’s hierarchy, approvals may involve multiple departments typically procurement, finance, and the budget owner.

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Clear approval rules prevent bottlenecks and ensure accountability. Many organizations use automation tools to route invoices to the right approvers and maintain a complete audit trail.

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Stage 6: Invoice Data Entry

Once approved, invoices are entered into the accounting or ERP system. This step records all relevant details, such as vendor name, invoice number, amount, and due date.

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Automating invoice data entry reduces manual effort and ensures that payment schedules are accurate and up to date.

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Stage 7: Payment Processing

After all verifications and approvals, payments are prepared based on the invoice due date and company payment cycle. Depending on policy, payments may be made via checks, ACH transfers, or wire transfers.

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Finance teams often batch payments to maintain healthy cash flow and take advantage of early-payment discounts.

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Stage 8: Payment Recording

Once payments are made, they’re recorded in the accounting system and linked to the corresponding invoice and PO.

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This step ensures the general ledger and cash flow statements are accurate. It also supports easier audits and month-end reconciliation.

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Stage 9: Vendor Management and Communication

The final stage involves updating vendor records with payment details and resolving any discrepancies.

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Good vendor management strengthens relationships, helps negotiate better terms, and ensures continued service reliability. Maintaining open communication with suppliers also reduces delays and disputes in future transactions.

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How to Automate and Streamline AP Process in 2025

To improve your AP process, automate invoice handling, use electronic approvals, centralize AP tasks, take advantage of early payment discounts, track key metrics, let vendors submit invoices electronically, and connect AP with other financial systems.

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Here’s a detailed breakdown:

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1. Automate invoice processing:

Implement an automated data capture solution to reduce manual data entry and errors. This can involve using optical character recognition (OCR) technology to extract invoice data automatically and route it for approval and processing.

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OCR technology can read and extract data from scanned or electronic invoices, eliminating the need for manual data entry. This not only saves time but also reduces the risk of errors that can occur during manual input. Automated data capture solutions can also validate extracted data against your company's business rules and flag any discrepancies for review.

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Once the invoice data is captured, it can be automatically routed to the appropriate approvers based on predefined business rules and approval hierarchies. This streamlines the approval process and ensures that invoices are processed in a timely manner.

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2. Implement electronic approvals:

Use an electronic approval workflow to streamline the invoice approval process and ensure timely processing. This allows approvers to review and approve invoices remotely and on-the-go, reducing approval bottlenecks and delays.

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Electronic approval workflows can be customized based on your company's specific requirements and approval hierarchies. Approvers can receive notifications when an invoice is pending their review and can access the invoice details electronically from anywhere, at any time.

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Electronic approvals also provide a clear audit trail of who approved each invoice and when, which can be useful for compliance and dispute resolution purposes. Additionally, electronic approvals can be integrated with your company's accounting system to automatically update the status of invoices and trigger payment processing once all required approvals are obtained.

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3. Centralize AP operations:

Consider centralizing your AP function to improve control, standardization, and efficiency. This involves consolidating AP tasks and personnel into a single department or shared service center, which can help streamline processes, reduce duplication of effort, and enhance visibility into AP performance.

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Centralizing AP operations can provide several benefits, including:

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- Standardization of processes and procedures across the organization

- Improved control and visibility over invoice processing and payment activities

- Reduced duplication of effort and increased efficiency through specialization and economies of scale

- Enhanced ability to monitor and measure AP performance and identify areas for improvement

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When centralizing AP operations, it's important to clearly define roles and responsibilities, establish service level agreements (SLAs) with internal customers, and implement robust communication and collaboration channels to ensure smooth operations.

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4. Leverage early payment discounts:

Payment terms in accounts payable (AP) define when and how vendors are paid. Common options include Net 30 and Net 60 payment terms, where invoices are due within 30 or 60 days. Choosing the right timeline depends on your company’s cash flow and vendor expectations.

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Many suppliers offer early payment discounts to encourage faster payments. For example, 2/10 Net 30 lets you save 2% if the invoice is paid within 10 days instead of 30. These small savings can add up and build stronger supplier relationships.

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Automation tools can help finance teams track invoices, spot discount opportunities, and align payments with cash flow. By optimizing payment terms in AP, businesses can balance liquidity, reduce costs, and improve vendor trust.

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5. Monitor key performance indicators (KPIs):

Tracking AP KPIs helps finance teams measure performance, find inefficiencies, and improve payment operations. By monitoring metrics like invoice processing cycle time, first-pass yield, and days payable outstanding (DPO), you can evaluate how efficiently your accounts payable process runs.

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Invoice processing cycle time measures how long it takes to process an invoice from receipt to payment. Industry benchmarks suggest top-performing teams complete this in less than five days, while the average organization may take 10–14 days. A shorter cycle improves cash flow visibility and reduces late payments.

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First-pass yield represents the percentage of invoices processed correctly on the first attempt without manual intervention or rework. A benchmark of 90% or higher indicates strong accuracy and automation.

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Days payable outstanding (DPO) shows the average number of days a company takes to pay its suppliers. A balanced DPO typically between 30 and 45 days, helps maintain good vendor relationships while optimizing cash reserves.

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Finally, monitoring your AP error rate highlights how often issues like duplicate payments or incorrect entries occur. Keeping the error rate below 1% signals a mature, well-managed process.

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6. Implement vendor self-service portals:

Provide vendors with access to a self-service portal where they can submit invoices electronically, check payment status, and update their information. This can reduce the workload on your AP team and improve vendor communication and satisfaction.

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A vendor self-service portal can provide several benefits, including:

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- Reduced manual effort and paper-based processes for invoice submission and vendor communication

- Improved visibility and transparency for vendors into the status of their invoices and payments

- Faster resolution of vendor inquiries and disputes through self-service capabilities

- Enhanced data accuracy and completeness through vendor-maintained information

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You should also establish policies and procedures for vendor onboarding, data validation, and issue resolution to ensure smooth operations.

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7. Integrate with other financial systems:

Integrate your AP process with other financial systems, such as your enterprise resource planning (ERP) or accounting software, to enable seamless data flow and reduce manual data entry and errors.

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Integration between your AP process and other financial systems can provide several benefits, including:

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- Reduced manual data entry and errors through automated data transfer and validation

- Improved data accuracy and consistency across systems

- Enhanced visibility and reporting capabilities through centralized data storage and analysis

- Faster processing times and reduced cycle times through automated workflows and approvals

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When integrating your AP process with other financial systems, it's important to map out the data flows and business processes across systems and ensure that data is being transferred accurately and securely. 

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Challenges in the Accounts Payable Process

Some common challenges in AP are manual work, limited visibility, fraud risks, managing vendors, following regulations, integrating technology, and getting people to adopt changes.

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1. Manual processes: 

Manual data entry and paper-based processes can be time-consuming, error-prone, and difficult to scale. These processes often involve multiple touchpoints and handoffs, which can lead to delays, lost invoices, and inaccurate data.

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2. Lack of visibility: 

Without a centralized system, it can be challenging to gain visibility into the status of invoices and payments across the organization. This can make it difficult to track AP performance, identify bottlenecks, and make informed decisions for process improvement.

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4. Vendor management: 

Managing vendor relationships and resolving issues can be time-consuming and complex, particularly with a large vendor base. This can involve managing vendor information, communicating payment status, and resolving disputes or discrepancies.

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5. Compliance and regulations: 

Ensuring compliance with tax regulations, financial reporting requirements, and industry-specific standards can be challenging, particularly for companies with complex AP processes or international operations.

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Quantified Benefits of AP Automation

Automating the accounts payable process can significantly improve accuracy, speed, and visibility. The AP automation benefits go beyond cost savings, they help finance teams make smarter, faster decisions while reducing manual workload. By tracking AP efficiency metrics, businesses can clearly see how automation transforms performance.

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Here’s how automation impacts key areas compared to manual processes:

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Here's how Spendflo can help you streamline your AP process with Procure-to-pay feature

Manual AP processes don’t just slow your team down, they quietly drain money and time every month. Missed early payment discounts, late vendor payments, and scattered approvals can all chip away at your company’s bottom line.

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That’s where Spendflo comes in. One of our customers, a mid-market SaaS company, reduced their invoice processing time by 60% and achieved $400,000 in annual savings after switching to Spendflo’s procure-to-pay (P2P) platform. By centralizing vendor data, approvals, and payments, their finance team gained real-time visibility and control, without adding headcount.

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If your organization is still juggling emails, spreadsheets, and manual approvals, you’re likely missing out on valuable savings opportunities and operational clarity. Spendflo’s AI-powered P2P solution automates intake, approvals, and payments, ensuring every dollar is tracked and every vendor relationship is well-managed.

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Don’t let inefficiencies hold your finance team back. Take the next step toward smarter spend management. Book a demo today and see how Spendflo can help you simplify your AP process, reduce costs, and drive measurable ROI.

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Frequently Asked Questions (FAQs)

1. What is the difference between accounts payable and accounts receivable?

Accounts payable refers to the money your company owes to vendors and suppliers, while accounts receivable refers to the money your customers owe to your company. Accounts payable represents a liability on your company's balance sheet, while accounts receivable represents an asset.

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2. How can I ensure that invoices are paid on time?

To ensure timely payments, implement a standardized AP process with clear timelines and responsibilities, leverage automation to reduce manual effort, and monitor payment due dates closely. You can also set up reminders or alerts for upcoming due dates and prioritize payments based on vendor terms and your company's cash flow needs.

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3. What is the AP workflow process?

The AP workflow process is a structured sequence of steps for managing and paying vendor invoices. It typically includes invoice receipt, data capture, matching, approval, payment authorization, payment execution, and record-keeping, all designed to ensure accurate and timely payments while maintaining financial control.

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4. How can I reduce the risk of fraud in my accounts payable process?

To reduce fraud risk, implement strong controls and approvals, segregate duties, conduct regular audits, and provide training to your AP staff on identifying and reporting suspicious activities. You can also use technology solutions, such as duplicate payment detection or vendor verification, to prevent and detect fraudulent activities.

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5. What is an AP Process?

The accounts payable process is the series of steps involved in receiving, verifying, and paying invoices from vendors and suppliers. It begins when your company receives an invoice and ends when payment is made and recorded in your financial records.A well-managed AP process is critical for the financial health and operational efficiency of any business. It helps prevent late payments, avoids duplicate or incorrect payments, and ensures that your company's cash flow is optimized.