How accounts payable works

What accounts payable is, and why it matters

On the balance sheet, accounts payable is a current liability: bills you have received and must pay within the year, on the payment terms agreed with each supplier. In day-to-day terms it is the work of checking that each bill is genuine and correct, getting it approved, recording it, and paying it on time.

AP sits between purchasing and cash. Purchasing decides what to buy and agrees the price. The receiving team, or whoever uses the service, confirms it arrived. AP checks the supplier’s invoice against both, then hands an approved, correctly coded bill to the people who release payments. If AP gets it wrong, the business pays for things it never received, pays twice, pays a fraudster, or pays late and damages supplier relationships.

The eight steps of the AP process

Follow one invoice from the moment it arrives to the month-end close:

1. 1

   Receive

   The invoice arrives by email, upload or post. Give suppliers one place to send invoices, usually a dedicated AP email address, so nothing sits in a personal inbox.

2. 2

   Capture

   Record the vendor, invoice number, invoice date, due date, line items, tax and total. Check the invoice number against earlier invoices from the same vendor to catch duplicates early.

3. 3

   Match

   For purchases made on a purchase order (PO), compare the invoice with the PO and the receiving record. Anything outside your tolerance becomes an exception.

4. 4

   Code

   Assign the general ledger (GL) expense account and any department, cost center or job. Vendor defaults save time on recurring bills.

5. 5

   Approve

   Route the invoice to the right approver based on amount, vendor or department. Invoices without a PO always need an approval.

6. 6

   Record

   Post the approved invoice to the accounting system as a bill, so it appears in accounts payable and on the aging report.

7. 7

   Pay

   Schedule payment by the due date, taking early-payment discounts where they are worth it. Verify any change to vendor bank details before paying.

8. 8

   Reconcile

   At month-end, agree the AP aging total to the Accounts Payable balance on the balance sheet and explain any difference.

Who owns each step

In most teams, AP specialists own receipt, capture, matching and coding. Budget holders approve. The accountant or controller owns recording, payment release and reconciliation. In a small business one person may do several of these jobs, but some combinations should always be split.

The basic rule is segregation of duties: no one person should be able to set up a vendor, approve its invoice and release the payment. The most dangerous combination is changing vendor details plus releasing payments, because one person could add their own bank account and pay it. Module 4 covers this control in detail.

PO and non-PO invoices take different routes

A PO-backed invoice was approved before anything was bought: someone raised and approved the purchase order. So the main control is matching, which proves the invoice charges what was ordered, at the agreed price, for what actually arrived. If it matches within tolerance, many teams need no further approval.

A non-PO invoice, such as rent, utilities, a subscription or a one-off service, has had no prior approval. It skips matching and goes to the budget owner to confirm the spend is genuine. Not every invoice has a PO: in Ardent Partners’ State of ePayables 2025, 65.4% of invoices were linked to a purchase order on average, so roughly a third of invoices rely on approval instead of matching.

Worked example: one invoice, start to finish

A supplier emails an invoice for 200 pallets of packaging at $42.00 each, $8,400 in total, quoting PO 4518. (Illustrative numbers.)

1. 1

   Receive and capture

   The invoice lands in the AP inbox. The AP specialist records the vendor, invoice number, dates, the single line and the $8,400 total, and checks the vendor has no earlier invoice with the same number.

2. 2

   Match

   PO 4518 is for 200 pallets at $42.00. The delivery note shows 200 received. Quantity and price agree, so the match is clean.

3. 3

   Code and approve

   The bill is coded to the packaging expense account for the warehouse cost center. Because the PO was approved and the match is clean, it needs no second approval under the team’s rules.

4. 4

   Record, pay and reconcile

   The bill is posted to the accounting system with a 30-day due date, paid in the payment run before it falls due, and at month-end it is part of the AP balance that is reconciled.

If the delivery note had shown only 180 pallets, the match would have failed on quantity, and the invoice would have become an exception instead of going straight on. Module 3 covers what happens next.

Where automation fits

AP automation does not change the eight steps; it changes how much of each one needs a person. Software can read invoices instead of someone keying them, run the match line by line, route approvals by rule and sync approved bills to the accounting system. People are left with the exceptions and the judgment calls.

In Aequo AP, for example, invoices are forwarded to an inbox or uploaded, the data is extracted, PO-backed invoices are matched, approval rules route the rest, and approved bills sync to QuickBooks Online, Xero, FreshBooks or Zoho Books. Paying vendors from Aequo is coming soon; today the payment itself happens in the accounting system.