The accounts payable process, step by step

Accounts payable is where a business keeps its promises to suppliers. Every bill that arrives is a commitment: to pay the right amount, to the right supplier, on time, and to record it correctly. When the process works, nobody notices. When it doesn't, it shows up as late fees, duplicate payments, frustrated suppliers and a close that won't reconcile.

This guide walks through the accounts payable process step by step, explains who does what and which controls matter, and follows one illustrative bill from arrival to the bank statement.

What is the accounts payable process?

The accounts payable process, often called the AP process, is the set of steps a business follows from the moment a supplier bill arrives to the moment it's paid and recorded: capturing the bill, checking it, approving it, recording the liability, paying it and reconciling the payment. Accounts payable is also the name of the balance itself: the total the business owes its suppliers, shown as a liability on the balance sheet.

The accounts payable process in six steps

1. 1Receive the bill. Capture the supplier, amount, currency, due date and the purchase order it relates to, in one place rather than scattered across inboxes.
2. 2Check it. Compare the bill with the purchase order and the receipt, and look for duplicates.
3. 3Approve it. Send the bill, with its order and receipt, to the person responsible for the spend, and keep a record of the decision.
4. 4Record it. Post the bill to the ledger: debit the expense or asset, and credit accounts payable.
5. 5Schedule and pay. Choose the payment date based on the due date, payment terms and your cash position, and confirm the exchange rate and fees before money moves.
6. 6Record the payment and reconcile. Post the payment with its exchange difference and fee, match it to the bank statement, and confirm the supplier's balance is zero.

If you buy goods against purchase orders, the check in step two is the most important control in the process. Our guide to three-way matching explains how it works and what to do when the documents don't agree.

A worked example: one supplier bill, start to finish

Take the illustrative purchase used across this site. Alder Tech GmbH sends bill #A-311 for 6 laptops at €1,500 each, €9,000 in total, against purchase order PO-2087. All 6 laptops have arrived, so the bill matches the order and the receipt, and the budget owner approves it.

When the bill is recorded, the exchange rate is 1 EUR = 1.0800 USD, so journal entry JE-5520 debits computer equipment and credits accounts payable for $9,720:

By the payment date the rate has moved to 1.0850. The supplier still receives €9,000, but it now costs $9,765, plus a $15 payment fee, so $9,780 leaves the bank. Journal entry JE-5521 clears the full $9,720 from accounts payable and records the $45 difference as a realized FX loss and the $15 as a payment fee:

Debits equal credits in both entries, the supplier's balance is zero, and the $9,780 on the bank statement matches the payment exactly. Nothing is left to investigate at month-end.

Who does what in accounts payable

• The requester or buyer raises the purchase order and confirms what was agreed.
• Whoever receives the goods records the receipt, so the bill can be matched.
• The accounts payable team captures bills, runs the checks and prepares payments.
• The budget owner approves the spend; larger amounts may need a second approver.
• The controller reviews payment runs, reconciles payables to the ledger and owns the controls.
• The CFO or owner sets approval limits and payment policy, and decides how cash is used.

Accounts payable controls that matter

• Separation of duties: the person who sets up a supplier or approves a bill shouldn't also release the payment.
• Matching: pay against an approved order and a recorded receipt, not the bill alone.
• Duplicate checks on supplier, bill number, amount and date before anything is approved.
• Verify any change to a supplier's bank details through a known contact before paying, because fake change requests are a common fraud.
• Approval limits by amount, so larger payments get a second look.
• A complete record of who approved what, and why, kept with the bill.

Common accounts payable problems

• Bills arrive by email, post and portal, and some are never recorded until the supplier chases.
• Approvals stall in someone's inbox, so bills are paid late or rushed through.
• Early-payment discounts are missed and late fees are paid instead.
• The same bill is paid twice because it arrived twice.
• Payments are recorded at the bill's value, so exchange differences and fees surface later as unexplained gaps.
• Suppliers call to ask when they'll be paid, and nobody can answer without searching.

Accounts payable metrics worth tracking

• Days payable outstanding (DPO): how long, on average, you take to pay suppliers. Divide average accounts payable by cost of sales, then multiply by the number of days in the period.
• Accounts payable turnover: how many times you pay off your average payables balance in a period. Divide purchases by average accounts payable.
• On-time payment rate: the share of bills paid by their due date.
• Exception rate: the share of bills held for a mismatch, a duplicate or a missing approval.

What changes on one system

Most accounts payable work is moving information between systems: the order from purchasing, the receipt from the warehouse, the bill from an inbox, the payment from the bank and the entry in the ledger. When they run as one system, the bill arrives already connected to its order and receipt, approvals happen with everything in view, and the payment posts with its rate and fee attached. See how it works on the Accounts Payable and Procurement pages.