Accounts payable process: steps, workflow and tips

Published Tuesday 21 April 2026

Table of contents

• What is accounts payable?
• Why accounts payable management matters
• Accounts payable vs accounts receivable
• Accounts payable process steps
• How to automate accounts payable
• FAQs on accounts payable

Key takeaways

• Follow a clear, step-by-step accounts payable process — from placing orders to recording payments — to pay suppliers on time, avoid late fees, and keep your cash flow healthy.
• Centralise all incoming invoices in one dedicated location and verify each one against original quotes before approving payment, so you catch errors early and prevent costly disputes.
• Schedule payments strategically by checking your available cash first, then weighing up early payment discounts against your cash flow needs to save money without creating shortfalls.
• Automate repetitive accounts payable tasks — such as data entry, invoice approvals, and payment scheduling — using accounting software to reduce errors and free up time for other work.

What is accounts payable?

Accounts payable is the money your business owes to suppliers for goods and services received. The accounts payable process covers every step from placing orders to making final payments and recording them in your books.

A systematic accounts payable process helps you:

• Pay suppliers on time to maintain strong business relationships
• Schedule payments strategically to protect your cash flow
• Prevent late fees and resolve disputes before they escalate

Why accounts payable management matters

Effective accounts payable management protects your cash flow and keeps supplier relationships healthy. When you pay bills on time and follow a clear process, you gain real advantages:

• Save 1–3% on invoices by taking early payment discounts
• Negotiate extended terms to improve cash flow flexibility
• Build supplier trust through consistent, on-time payments
• Avoid cash shortages by scheduling payments around your income

Accounts payable vs accounts receivable

Accounts payable is money your business owes to suppliers. Accounts receivable is money customers owe to you. Both affect your cash flow, but in opposite directions.

Here's how they differ:

• Accounts payable: Bills you need to pay for goods and services received
• Accounts receivable: Invoices you've sent to customers awaiting payment

Managing both effectively keeps cash flowing through your business. When customers pay you, you have funds to pay your suppliers. Delays on either side can create cash flow problems.

For small businesses, tracking accounts payable and accounts receivable together gives you a complete picture of your financial position at any time.

Accounts payable process steps

Accounts payable starts when you order products or services and finishes when you make the final payment.

1. Placing orders

Placing orders accurately creates the foundation for smooth invoicing and payments. Getting this step right prevents disputes and cash flow surprises later.

1. Review requirements carefully: Confirm quotes match your needs and budget before proceeding.
2. Negotiate payment terms: Discuss due dates and flexibility upfront to avoid surprises.
3. Assign purchase order numbers: Link every order to a purchase order (PO) so you can match invoices later.
4. Set up invoice delivery: Provide a dedicated email address so all bills arrive in one place.

2. Receiving invoices

Managing invoices starts with collecting them in one central place. Set up a dedicated email address for all supplier bills to keep everything in one place.

Centralising your invoices helps you:

• Track all bills from a single location
• Store records digitally for easy searching and retrieval
• Process invoices automatically using software that scans and categorises
• Spot problems early before they turn into payment disputes

3. Approving (or disputing) invoices

Approving invoices requires you to verify them systematically before authorising payment. Check these elements in order:

1. Match services received: Confirm the invoice reflects actual goods or services delivered.
2. Verify costs: Double-check pricing against original quotes or agreements.
3. Get stakeholder approval: Forward to project managers or partners if required.
4. Address errors immediately: Contact suppliers about mistakes while details are fresh.

Solving issues early keeps payments on track and protects your supplier relationships.

4. Recording the amount owed

Recording invoices creates your payment schedule and keeps your accounting records accurate. Follow these steps:

1. Log payment details: Record the amount owed and due date in your system.
2. Enter accounting records: Use accrual accounting or cash accounting based on your business method.
3. Capture VAT information: Note reclaimable VAT for your tax returns.
4. Store digital copies: Scan paper invoices to create audit-ready records.

5. Scheduling payment

Scheduling payments balances protecting your cash flow with saving costs. Consider these factors before setting payment dates:

1. Check cash availability: Confirm you have funds available on the due date.
2. Evaluate early payment discounts: Weigh discount savings against your cash flow needs.
3. Use forecasting tools: See how upcoming payments affect your bank balance.

You have several options for forecasting your cash flow. Choose the method that works best for your business:

• With software:Automated cash flow projections show how each payment affects your balance
• Without software: Use the free Xero cash flow forecasting template

If you spot a cash shortfall, act early. Taking prompt action gives you more options and helps maintain supplier relationships:

• Contact suppliers promptly: Negotiate extended terms or payment plans before the due date.
• Avoid high-cost credit: Negotiated payment extensions often cost less than credit card interest.
• Seek professional advice: Talk to an accountant about refinancing options, including government-backed lending programmes.

6. Executing payment

Executing payment completes the active part of your accounts payable cycle. Use these methods to stay on top of due dates:

• Automated payments: Set up recurring transfers for regular suppliers.
• Dedicated payment schedule: Block specific times weekly for invoice processing.
• Software reminders: Use accounting software alerts to flag upcoming due dates.

7. Recording payment

Recording payment finalises your accounts payable cycle and keeps your books accurate. Complete these steps:

1. Enter the expense: For cash accounting, record the expense in your ledger when payment clears.
2. Update accounts payable records: Move paid invoices from accounts payable to completed transactions.
3. Confirm completion: Check that the supplier relationship remains in good standing.

How to automate accounts payable

Automating accounts payable uses software to handle repetitive tasks like entering data, approving invoices, and scheduling payments. This reduces errors and frees up your time for other work.

Modern accounts payable software can handle many tasks automatically. Here's what it typically manages:

• Invoice processing: Reads emailed bills automatically and extracts key data
• Cash flow forecasting: Shows how upcoming payments affect your bank balance
• Payment approvals: Routes invoices to the right people for sign-off
• Payment execution: Schedules and processes payments on due dates
• Record keeping: Updates your accounts automatically when payments clear

FAQs on accounts payable

Here are answers to common questions about managing accounts payable.

What's the difference between accounts payable and expenses?

Accounts payable refers specifically to money you owe suppliers for goods and services already received but not yet paid for. Expenses are the costs your business incurs, which you record when you receive the bill (accrual accounting) or when you pay it (cash accounting).

How long should I keep accounts payable records?

You should keep accounts payable records for at least six years in the UK. This meets HMRC requirements and gives you proof of payments if disputes arise.

Can I negotiate payment terms with suppliers?

Yes, you can negotiate payment terms with most suppliers. Many offer early payment discounts or extended terms for reliable customers. Build strong relationships by paying on time, then discuss terms that work better for your cash flow.

What happens if I pay an invoice late?

Late payments can damage supplier relationships and trigger penalty fees. Some suppliers may refuse future credit terms or require upfront payment. Contact suppliers before due dates if you anticipate payment problems.