The Full Cycle Accounts Payable Process

In the business process known as “procure to pay” or P2P, accounts payable is a critical component. It encompasses the whole cycle an AP department goes through to complete and archive a purchase. 

Without this setup, a business will fall behind on bills, straining relationships and negatively affecting revenue. Thus, it’s important to understand what the full cycle accounts payable process involves and how to streamline it at every corner.

What is the Full Cycle Accounts Payable Process?

As the name implies, this is the complete cycle an accounts payable department goes through to finish the job. Many articles surrounding this topic will only mention the end stages of the process, but the entire cycle actually begins when searching for something to buy. 

The cycle of the AP process involves the following steps:

1. Determination of goods – This includes supply requests from production and other staff.
2. Purchase department starts procurement – Will look for similar purchase orders or begin to create new ones.
3. Search for suppliers – Look at locality, ease of transport, and credit policies to start.
4. Request for proposal – A formal document called a “request for proposal” (RFP) is delivered for quotes.
5. Review receiving quotes – Company reviews quotes from suppliers and selects a few to negotaite with.
6. Negotiation process – Buyer can request seller lower rates, offer credit, discounts, terms, etc.
7. Purchase order – A PO is drawn up for the desired product/service with requirements and deadline.
8. Supplier confirmation – Supplier agrees to terms and conditions on the purchase order.
9. Supplier’s duty – Notification must be sent when goods are ready to ship with shipment notice including weight, units, date, etc.
10. Inspection of delivered goods – Inspection of received order including quality and quantity checks.
11. Receiving report – A report for goods receieved (noting any damages) is produced for invoice payment.
12. Invoice approval – Invoices are routed to the appropriate approvers before processing.
13. Invoice capture/entry – Purchasing sends approval to the AP team where the invoice is scanned/entered into the system.
14. Two and Three way match – The invoice is matched to the appropriate paperwork like the PO, shipping receipts, and inspection report.
15. Invoice coding – Invoices are coded with the correct ledger account and cost center.
16. Payment – Timely payments are distributed according to supplier payment terms and due dates.

At the end of the day, the main AP process can be broken down into four categories: invoice capture, invoice approval, payment authorization, and payment execution. Although all of this bookkeeping seems like an arduous task, today’s accounting software can automate many of the menial jobs.

Once an invoice is greenlighted for payment processing, early payment often leads to payment discounts. An accounts payable clerk will issue the final payment for an invoice using the company’s cash, a check, credit card, bank wire, or other form of digital payment. 

The Flow of Full Cycle Accounts Payable

The full cycle accounts payable process can be thought of as flowing in two directions, upstream and downstream. 

• Upstream. This is where procurement takes place. In this phase, the business will conduct strategic sourcing, supply chain management, and negotiate contracts. Payment terms are discussed during this first half, and purchases can be monitored for risk. 
• Downstream. In the second half, goods and services are received with an invoice that is verified and paid. As with the upstream phase, risk management is a crucial component with payable automation a viable solution.

In both instances, it’s important to continually strive to reduce human error, maximize efficiency, and incorporate modifications to achieve greater productivity and stronger internal controls. 

Challenges of the Accounts Payable Cycle

The AP department is a busy place and is typically awash in manual processes, whether that’s cash management, paper invoices, data entry, or double-checking due dates. That means, there are many challenges presented and a variety of systems working in tandem, simultaneously. 

For many companies, both small businesses and larger enterprises, AP goals are never effectively met due to a multitude of obstacles. These can include:

• Lack of planning and consistency
• Outdated equipment
• Limited staff
• Duplicate payments or double-entry
• Manual bottlenecks
• Lost/missing paperwork
• Diluted approval process
• Inaccurate balance sheet
• Late payments and late fees
• And more…

Like a clock, the accounting process relies on a variety of gears to operate seamlessly and function properly. Any small slip-up can result in strained relationships, late payments, and loss of discounts.

That’s why many organizations and small business owners are turning to AP automation to ensure efficiency.  

Automation: The Answer You’ve Been Looking For 

For analyzing financial statements, expense reports, and the general ledger, a small business typically turns to a spreadsheet for tracking.

However, automating your AP workflow makes every single aspect of the process simpler. Your team will no longer be scrambling for signatures, wasting valuable time with menial data entry tasks, or devoting company money (and intangible human resources like creativity and problem-solving) to largely repetitive, unnecessary processes. 

A company is also helping the environment (and saving money on office supplies), as an automated AP process allows you to go entirely paperless. Today, many manual tasks have been simplified thanks to advanced digital tools that simplify a variety of jobs.

With an ERP system set up, you’ll be able to automatically match invoices to purchase orders and enter them into your system without any human intervention. Invoice data capture can become an instant process with the use of online supplier portals. These days, AP doesn’t even have to scan an invoice if they have the right equipment.

The end result of all of this is that every vendor invoice that comes through your business becomes an electronic invoice. The dependence on physical paper (and many aspects of office supplies) has been eliminated to create a leaner department. It allows for a new surplus of resources to redirect to more profitable areas.

Accounting Software for Full Cycle Accounts Payable 

If you’re looking to set up an automated accounting system, consider these two platforms:

Quickbooks. AP offices that use Intuit’s Quickbooks get several accounting features that spreadsheets aren’t able to deliver. For example, the software offers:

• Audit Trail: This tool displays a history of all changes to a transaction, including when the edits were made, who made the modifications, and what the specific changes were. 
• Roles and permissions: Establish custom permissions for various types of employees. For example, you can create a unique login for accountants. 

Tipalti. For ERP integration and global payment capabilities, Tipalti offers a suite of software tools that can accomplish many tasks. These include:

• Ability to send payments to suppliers in over 180 countries.
• Invoice processing with optical character recognition (OCR). 
• VAT and tax compliance with multiple tax forms.  
• Compatibility with Quickbooks.

Summing It Up 

In many companies today, AP has become a bottleneck and a drain on valuable time and resources. Automation through streamlined AP software makes every invoice an e-invoice through a largely paperless system. Vendor payments are made quickly and efficiently, which solidifies vendor relationships and streamlines the payment process.

A business can save vital employee time and productivity, while investing in the mission of building a better, more successful company. 

Although end-to-end accounts payable entails a great deal of red tape, it doesn’t have to be a tedious process. With adequate knowledge, experience, and tools, every AP office can efficiently manage cash flow and payment processing.