What is the full cycle of accounts payable process?

The accounts payable process is a key function of your business, as it involves making sure that you are on top of all your payments.


Without the complete accounts payable process, you can easily fall behind on bills and can potentially end up with late payments that incur late fees.


To mitigate this, you have to understand the full cycle of accounts payable to be able to pick out areas in the process that need improvement.

What is the full cycle of accounts payable?


Broadly speaking, accounts payable processes are about taking care of money your business owes. It involves creating orders, receiving orders, and then paying for those orders.


However, full cycle accounts payable duties are not limited to just the payment process. Reviewing, matching, and reconciliation are also part of the complete accounts payable process.


To put it simply, a full cycle of accounts payable encompasses the full scope of the accounts payable process.

What is the flow of full cycle accounts payable?


The full cycle of accounts payable will vary from business to business, but most businesses will follow a general flow, which involves the following steps.




Determination of goods

The complete accounts payable process begins with supply requests. Oftentimes it would be from the production department, but other departments are likely to request supplies too.


Purchase department starts the procurement

Your purchasing department starts looking for similar purchase orders from the past as references. In the case that a similar supply request has yet to come in, they will begin to create a new one.


Search for suppliers

The purchasing department will look for the best suppliers for the supply request. They will consider the quality of the product, ease of delivery, credit policies, and many more.


Request for proposal

After noting down a selection of suppliers, a document called a “request for proposal” (RFP) is sent out to suppliers. This is to get quotes from suppliers.


Review receiving quotes

Your company will review the quotes you’ve received from suppliers. You should then select a few vendors to negotiate with.


Negotiation process

Negotiate with vendors for credit, lower rates, and discounts. Pick the vendor with the best negotiation results according to your requirements.


Creating purchase order

After the negotiation has been finalized, your business will generate a purchase order for the product. It has all the requirements for the product, including the deadline for delivery.


Supplier confirmation

The purchase order will be sent to the supplier, where they will confirm they agree on the terms and conditions of the negotiation and purchase order. 


Supplier’s duty

Your supplier will process and fulfill the purchase order. They are responsible for sending a notification of shipment when the order has been processed. 


Inspection of delivered goods

When the product has been received by your business, your team will inspect the order for both quality and quantity checks to ensure that everything checks out with the purchase order.


Invoice capture/entry

The accounts payable team scans and enters the invoice into the system in preparation for payment. This includes entering the invoice code, vendor data, and payment total.


Two and three-way matching

As mentioned, the full cycle of accounts payable includes reviewing and matching. Your accounts payable team will match incoming invoices with other documents like POs, shipping documents, and inspection reports before payment is made.


Related read - Simplify matching invoices to purchase orders


Payment

Final step in a full cycle of AP is to make your payment in a timely manner according to your supplier’s terms.

What are the main areas in a cycle of accounts payable?


1. Purchase order

The purchase order is a central part of the full cycle of accounts payable because it acts as a contract between your business and the vendor from which you are purchasing supplies.


It includes information about the quantity of the product, the type of service if you are purchasing services, the delivery deadline, as well the price agreed on by both parties.


The vendor is responsible for delivering their product according to the purchase order, while your business is responsible for making payment accordingly. 




2. Receiving reports

Once your business has received the product from the supplier, your team will turn the receipts of your purchase into a receiving report.


The receiving report is a document detailing the examination of the product received, comparing it with its respective purchase order.


It’s also where you make notes of any damages, or if there are any discrepancies between the purchase order and the product received.


This is to ensure that all requested items have arrived in the appropriate and agreed-upon conditions.




3. Vendor invoice

After the items received have been cross-referenced with the purchase order, your vendor will then submit an invoice for you to process payment.


You want to make sure that you have a streamlined invoice process and that you follow the process for every invoice you receive. The complete accounts payable process maintains that there are no invoice frauds that happen to your business. 



4. Three-way match

Payment for an invoice should not happen automatically until the invoice gets matched against the corresponding purchase order and receiving report documents.


Doing three-way matching whenever you receive an invoice prevents fraud and detects errors in invoices. 




5. Review, approve, and process payments

When scheduling payment for an invoice, you should also have an approval workflow set up in your business.


Those who are the designated approvers of invoices will be in charge of making sure that invoices of any scale have been checked for approval.


Once everything has been approved, the accounts payable team will then process the payment. The full cycle of accounts payable will come to a close when the payment has been received and reconciled.

Key challenges faced in the full cycle of accounts payable


There are many challenges that you may encounter in the full cycle of accounts payable. Some common ones that your business might face include:




1. Lack of planning

There is a lot of planning involved in the steps of the full cycle of accounts payable. However, when you are processing a lot of orders, it will be near impossible to plan out every single detail for every part of the accounts payable process




2. Outdated equipment

Without the help of accounts payable automation software, you will have to manually enter invoice data, three-way match every invoice, and chase down approvers one by one for every single invoice you have.


This is inefficient and lengthens the full cycle of accounts payable. 




3. Limited staff

When you are processing hundreds of invoices every month, having a small team of accounts payable staff might not be enough.


Having limited staff will result in huge workloads that can be overwhelming, and in the worst-case scenario, your staff might start getting behind on the complete accounts payable process.




4. Duplicate payments

When processing invoices manually, there is a chance that you could accidentally pay for the same invoice twice. If these errors are detected, you can then ask for a refund from your vendors, although it might be a tedious process.


But if duplicate payments don’t get detected, it’ll lead to a leak in your cash flow. 




5. Manual bottlenecks

Manual work in the full cycle of accounts payable will cost you, as they are time-consuming and often can lead to results that are riddled with errors. Invoice data entry, for example, can slow you down when the process is done manually.




6. Lost/missing paperwork

Your documents will likely have to cross many desks in the full cycle of accounts payable. It’s easy to lose track of which document should be on which desk. This could then lead to missing paperwork, which will leave you with incomplete data.




7. Diluted approval process

It’s difficult to track down every approver for every single invoice. This could lead to a diluted approval process, where your invoices may not go through every level of approval or could even be processed without authorization and the necessary approvals.




8. Inaccurate balance sheet

Data getting misplaced or lost in the full cycle of accounts payable can lead to inaccuracies in your month-end reports, such as your balance sheet.


When you have an inaccurate balance sheet, you won’t be able to accurately detect where your business is leaking money and therefore can’t fix it.




9. Late payments and late fees

If your business has a slow invoice turnover time, this could lead to an inability to pay your invoices on time.


When you are riddled with late payments, late fees from vendors could easily add up and end up costing you a lot of money that you could otherwise save.

How to automate the full cycle of accounts payable?


Challenges in the full cycle of accounts payable can be mitigated by automating different areas of the cycle. Automation in the following areas will help you manage the full process of accounts payable better.




1. Purchase order automation

You can automate your purchase order workflow by sending purchase requests automatically to their respective approvers.


This means your staff doesn’t have to chase down approver after approver just so that they can create a purchase order. It also ensures that every purchase request has been approved before a purchase order is created.


Purchase order automation can also send approved purchase orders automatically to suppliers after they have been created.



2. Accounts payable automation

Automating data entry processes not only speeds up invoice processing but also reduces errors that would otherwise be made in the manual process.


Automation also allows you to set roles and permissions for staff involved in the full cycle of accounts payable, allowing everyone to be involved while simultaneously only having access to what they need.


This means that you can include your invoice approvers and have them approve invoices through the accounts payable automation software for ease.



3. Data

Automating data allows you to generate and process larger amounts of data, both for accounts payable and purchasing.


Data is easier to generate and analyze, meaning that you will have a better scope of your business’ complete accounts payable process. You can also generate and process data faster, which will lead to a shorter invoice turnover time.



4. Machine learning or artificial intelligence

Artificial Intelligence can help you with data extraction and auto-classifications of your invoices. This not only speeds up your full cycle accounts payable duties, but it also means that there will be fewer manual touches in your process.


That means that you’ll end up with fewer errors, as there would be no more misfilings or wrong data entries.

How can Volopay better manage the full cycle of accounts payable?


With Volopay’s accounts payable automation, you can automate areas of invoice processing such as data extraction and approval workflows.


You no longer have to manually extract data from each invoice, saving time and avoiding errors. 


Invoices that have been entered into the system will automatically be routed to their designated approvers, who can view these invoices and approve them in real time.


With Volopay you get to speed up your complete accounts payable process and get better visibility into the full cycle of accounts payable. 

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