Technology
What is Accounts Payable? Definition, Process and Examples
Raj Roy
06 Mar, 2026
Table of content
What is Accounts Payable?
- Accounts payable is defined as an enterprise representation of money owed to vendors/ suppliers in the form of invoice claims with the company.
- Inherently, accounts payable is a post-paid process, which are the current liabilities of the company. It does not include pre-paid services, which fall under current assets.
- For example, if a design agency provides services to the product engineering team within a software company, it would typically be done in a post-paid format. The agency would provide the services and raise a monthly invoice to the firm, which would be received as accounts payable. This invoice is then verified, validated and cleared, based on internal accounts payable processes.
- Accounts payable is distinguished from accounts receivable by a full reversal. Accounts receivable is the money owed by customers to the company for providing services/ products. Whereas for accounts payable, it is the money the company owes to its vendors/ suppliers. Notice that what is receivable for one enterprise, is payable for the other.
Key Components of Accounts Payable Process with Examples
Standard accounts payable process in enterprises encompass several key components required to ensure error-free, data-backed and audit-ready accounts book-keeping. A proper process is also key to ensuring timely and accurate vendor payments and enterprise supply-chain efficiency.
- Here are the key components for an effective accounts payable process:
- Accounts payable record matching method
- The cornerstone of effective accounts payable processing is the record matching methodology to be used for tallying vendor invoices with internal documentation to validate the invoice’s authenticity and accuracy. Typically, a 2 match or a 3 way match is standard across industries.
- In a 2 way match, the vendor invoice is matched against the purchase order (PO), and in a 3 way match, the additional documentation used is a goods received note (GRN) alongside the PO.
- In very exceptional cases there may be a requirement for a 4 way match which includes an investigation report.
- Invoice approval workflow
- In accounts payable, invoices don't just get matched, they need to be approved by team members with the right authorization, after it has been validated for authenticity and accuracy. For smaller companies, it may just be one or two people, for larger enterprises, it may involve a series of approvals from multiple team members.
- Setting the right invoice approval workflow ensures that there is neither excess bureaucracy that can stall processing, or too little which can cause errors, frauds or excess payments.
- Vendor invoice
- A vendor/ supplier invoice is received by the company in the form of a bill, and is registered as an accounts payable after it has been authenticated. A mere invoice does not account for payable without verification through document matching.
- Today, it is standard across industries to receive digital-only invoices, typically via an email record. This is also key to using any accounting or financial software for efficiency and for implementing automation in accounts payable.
- Purchase order (PO)
- The purchase order is the primary internal documentation that serves as a tallying document against any vendor invoice. It contains key details of the purchase from a vendor, such as quantity, quality and type of service/ product, vendor’s details etc.
- A PO is typically raised by a team lead whose team will use the product or service to be purchased, and is the key verification document used in both 2 way and 3 way record matching when the vendor raised the invoice.
- Good received note (GRN)
- A good received note (GRN) is submitted by the team lead/ member who has received goods/ services from a vendor. This is a supporting document used in 3 way matching process, alongside the PO, to validate a vendor invoice.
- A GRN is meant to ensure that the quality and quantity of products/ services are as per the requirements in the purchase order. It serves as an added guarantee that no issues took place during the delivery of the items/ services.
- This documentation may be simple for companies with small employee strengths, while being elaborative for large enterprises.
- Exception/ error handling protocols
- Exception and error handling protocols in accounts payable are a set of rules used to proceed in scenarios where there are exceptional cases or errors. These can be issues with invoice and PO/ GRN mismatch, incomplete or inadequate internal documentation, pricing issues, etc. Every company has their own rules of engagement in such cases with an escalation matrix in place to handle such situations internally and/ or with vendors.
- For example, a situation may arise where the invoice and PO data match, but there is a different description in the GRN. In such cases, typically the first line of enquiry is internal investigation with the team that received the goods/ services. If the issue is not resolved and the vendor needs to be contacted, then accounting liaisons with both the internal recipient and the external vendor to resolve the errors.
- Payment process
- Once all the mandated validations for a payable has been completed, the payment is processed by the company based on existing financial channels. Today, online transfers are the standard mode of payment, however in certain industries, direct cash or cheque payments are also the norm.
- An enterprise should have specific policies detailing in which situations cash/ cheque payments are permitted and the financial trail that needs to be maintained for audit and compliance. This is because online payments have a digital trail that can be easily furnished for external auditors, whereas cash payments require adequate documentation to ensure transparency.
- Reconciliations
- Periodic accounts payable reconciliations involve gathering vendor statements and matching that with internal finance ledger to ensure that all transactions and payments have been accurate and error-free. This is a key practice of financial assurance and is typically done quarterly, half-yearly or annually, depending on the volume of transactions in accounts payable.
- Digitization and software
- In today’s age, ensuring maximum digitization in accounts payable is critical for scalability, audit and ease. From requesting digital invoice from vendors to ensuring all internal documents are in digital formats, and preferably cloud-based for easy real-time access, and finally, also making payments via online channels as much as possible.
- Furthermore, automation platforms like Rever enable accounting teams to process vendor invoices in seconds, with the final results just kept ready for human eyes for a final check. Rever relieves accountants and finance teams from the cumbersome, repetitive and manual tasks of data entry, invoice record matching and reconciliations.
