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In the world of business, managing finances effectively can be the difference between success and stagnation. One of the key financial functions that plays a pivotal role in an organization's financial health is accounts payable. Whether you're a small startup or a multinational corporation, how you handle your bills and vendor relationships can be a make-or-break factor.

Consider the story of TechSavvy Inc., a tech company that, not too long ago, was on the brink of financial instability. Late payments, frustrated vendors, and cash flow issues plagued the organization. The culprit? A disorganized accounts payable process.

But then, TechSavvy embraced change. By implementing the accounts payable best practices we're about to explore, they transformed their AP department into a strategic asset. 

Join us as we delve into the top 15 AP best practices that can transform your financial landscape.

What are Accounts Payable (AP)?

Accounts payable is the amount that a business entity owes to its creditors, service providers and suppliers. This amount, based on the invoice or bill, is recorded as a liability on the company’s balance sheet. 

Until recently, AP was an unglamorous, back-end function which was not a priority with most business owners or CEOs. But now, companies are realizing the importance of accounts payable invoice processing best practices in improving cash flow, working capital and relationships with suppliers/vendors.

Ensure on-time payments, consistent cash flow and avoid internal or vendor fraud. Here are 15 accounts payable tips & tricks that will optimise your balance sheet:

1. Keep Track of Your Accounts Payable Process

The top best practice in the accounts payable process is to review, organize and prioritize invoices (or proforma invoices) and bills according to their due dates. It would be a good strategy for your accounts payable team to work closely with your procurement team to streamline and keep track of purchases, pay orders, 3-way matches and invoices. This not only enhances efficiency but also helps check duplication, omission or delay in processing invoices, and any fraudulent activity. 

Besides, when it comes to items like credit card bills it is smarter to first pay the cards that charge the larger interest. Regular monitoring and evaluation of the accounts payable process is a best practice that can enable the growth and viability of your business.

2. Time IS Money

In business timing is everything; and when it comes to cash flow, timing is critical. Hence, it is an accounts payable best practice to pay invoices on time – never early, never late. Early payments do not really make sense and may unnecessarily block your cash; whereas late payments can make you unpopular with suppliers and even cost you in terms of interest or late charges. On-time payment earns you the trust and respect of suppliers and associates. If your vendors offer incentives for early payment, you might as well utilize them. 

 In short, while timing your payments ensures smooth cash flow for your business, it also enhances your negotiating power with vendors/suppliers for extended payment terms, longer warranty periods and more.

Top 10 Accounts Payable Best Practices of 2023
Photo by Aron Visuals / Unsplash

3. Maintain an Up-to-date Supplier List

It would also be in your company’s best interest to involve key personnel in the selection of suppliers, as part of an accounts payable and invoicing processing best practice. Negotiate prices, discounts, terms of service and payment. Set up a master Supplier Data List, which contains details of products or services, volume discounts, credits, delivery timelines, quality standards, service level agreements (SLAs) and other terms of contract. Establish strict procurement standards. Such a list also prevents employees from engaging in random or fraudulent purchases.

4. Standardize Payment Terms

Establishing Standard Payment Terms for all suppliers is an accounts payable best practice that can help optimize their payment processing. It also gives you better control over cash flow. Standard Payment Terms are important, especially when dealing with a large number of suppliers. While it prevents ad hoc negotiations with individual suppliers, standard payment terms should not preclude renegotiations.

5. Centralize for Transparency & Efficiency

Centralizing the accounts payable and reporting functions establishes common practices and standards to be followed across the board. It becomes a single point of reference where all data is available, rather than necessitating multiple inquiry points. Centralizing the functions also increases efficiency by removing redundancies and enabling performance measurement. 

The involvement of senior management in the accounts payable process will also help motivate the AP team. In addition, having robust systems in place and following accounts payable best practices gives you an accurate audit trail, and enables you to monitor the volume of invoices and payouts.

6. Separation & Rotation of Duties

Implementing internal controls is necessary to reduce risk of business fraud. The purchasing and accounts payable departments are high fraud-prone areas. Besides, if the same person is preparing invoices, writing cheques and processing payments, there is a likelihood of fake invoices or cheques and/ or tampering of cheques. It is advisable to separate and rotate the duties of invoicing, payment processing and cheque approval. 

Following this best practice in accounts payable ensures that the team is aware of the activities and all of them are equipped to handle all duties, so that the department runs smoothly.

7. Check for Errors & Duplication of Payments

As the people who handle the cash in your business, your accounts payable team has to be supremely alert. They are not just people who write cheques, but by adhering to AP invoicing best practices they become the guardians of the company’s cash flow and bottom line. Your accounts payable team cannot pass any invoice with an error. They also have to check regularly if any duplicate payment has been made, because such errors eat into the business.

8. Tracking and Resolving Disputes
Photo by GR Stocks / Unsplash

8. Tracking and Resolving Disputes

When it comes to invoices, exceptions are a sore factor for accounts payable. It would be ideal for your company to have dedicated channels or a streamlined process for reporting and sorting exceptions in invoices. Disputes can cause serious payment & time delays, sorting the issue with the supplier. Repeated disputes with a supplier would also mean having to look for a new one. If your company follows defined accounts payable best practices, you can track invoice statuses in real-time and ensure timely resolution of issues.

9. Tie Up Loose Ends: Uncashed Cheques & Incomplete Ledgers

Alertness, when it comes to payouts and proper recording of the same, are accounts payable best practices that cannot be overlooked. Your AP team has to keep track of all cheques issued to suppliers. If a cheque given three weeks ago does not reflect on your bank statement, your team better follow up and take action to ensure that cash flow does not get disrupted or that you do not incur a late payment fee.

Equally important is the daily book keeping best practice in the accounts payable process. If a situation arose wherein an additional amount was paid to a supplier by cheque and it was not mentioned in your ledger, you could be looking at an unexplained discrepancy in cash flow.

10. Using KPIs to Measure Accounts Payable Efficiency

Measuring accounts payable (AP) processing accuracy is vital for financial health and vendor relations. Several Key Performance Indicators (KPIs) can effectively gauge AP accuracy:

  • Invoice Error Rate: This KPI calculates the percentage of invoices with errors. High error rates can indicate inefficiencies in data entry or communication breakdowns with vendors.
  • Invoice Reconciliation Rate: It measures how well invoices align with purchase orders and receipts. A low reconciliation rate suggests a lack of three-way matching, potentially leading to overpayments or disputes.
  • Invoice Approval Time: This KPI evaluates the time it takes to approve invoices. Delays can signal bottlenecks or procedural inefficiencies, impacting accuracy.
  • Duplicate Invoice Rate: Duplicate invoices can result in overpayments. Tracking this KPI helps ensure that duplicate invoices are promptly identified and rectified.
  • Supplier Inquiry Response Time: A delayed response from suppliers regarding invoice discrepancies can hinder accuracy. Monitoring this KPI ensures timely resolution of issues.
  • Payment Accuracy: This KPI measures how often payments match the invoiced amount. A high payment accuracy rate indicates precise payment processing.

11. Reconciling Accounts Payable (AP)

Reconciling accounts payable (AP) at the end of each accounting period is a critical practice for maintaining financial accuracy and control. AP reconciliation involves comparing your internal AP records with vendor invoices, purchase orders, and payment receipts. This process ensures that all financial transactions related to vendor payments are accurately recorded and any discrepancies or errors are promptly addressed.

By consistently reconciling AP, businesses can achieve several benefits specific to their financial management:

  • Accurate Financial Reporting: Reconciliation helps in generating accurate financial statements, which are essential for decision-making and compliance purposes.
  • Preventing Overpayments: Regular reconciliation minimizes the risk of overpaying vendors due to errors or duplicate invoices, preserving precious financial resources.
  • Enhanced Vendor Relationships: Timely and accurate payments foster goodwill with vendors, leading to better terms, discounts, and improved vendor relationships.
  • Fraud Detection: Reconciliation can uncover irregularities or unauthorized payments, serving as a crucial control against fraud.
  • Improved Cash Flow Management: Identifying discrepancies early ensures that outstanding payments and liabilities are correctly recorded, helping in better cash flow forecasting.

12. Avoiding Single Points of Failure

In the realm of accounts payable best practices, one often-overlooked but crucial aspect is building a resilient team. Relying on a single point of failure within your accounts payable department can pose significant risks. Imagine a scenario where a key team member is unexpectedly absent due to illness, vacation, or turnover. The resulting downtime and disruption can push your financial operations into crisis mode.

To mitigate this risk, consider implementing a proactive strategy. Are your accounts payable staff cross-trained for different functions within the department? This simple yet effective approach ensures that the absence of one team member doesn't cripple your operations.

When a critical task is in the hands of a single individual, you leave your organization vulnerable. Vendors don't want to wait for John or Jane to return from vacation to process their payments. Having a backup plan, whether through cross-training or outsourcing, provides your business with the flexibility to handle absences seamlessly.

13. AP Automation for Accuracy and Growth

Automating your purchase and accounts payable processes will help streamline the approval, invoicing and payment processes of your company. This will result in freeing up working capital and reflect a healthier balance sheet and putting the business on the fast track for growth. With all details captured in a centralized database, there will be very little or no scope for errors, disputes or fraud. Such processes leverage AI-based AP automation software like Nanonets to save time and money while providing a clear audit trail.


In the dynamic landscape of finance and business operations, mastering accounts payable best practices is not just a choice; it's a strategic imperative. The top 13  accounts payable best practices we've explored in this journey provide a roadmap to enhance efficiency, transparency, and financial well-being.

From automating invoice processing to nurturing vendor relationships, from rigorous fraud prevention to strategic cash flow management, these accounts payable process improvement form the pillars of a robust AP department. By implementing them, organizations can reap substantial rewards: reduced costs, optimized cash flow, improved vendor trust, and compliance with regulatory standards.