MHC Logo

The Ultimate Guide to Accounts Payable

  MHC Marketing Team    Written: November 26th, 2020    Updated: March 22nd, 2023  

Guide to Accounts Payable illustration

You’ve probably heard the term “accounts payable” before and know that it’s an integral measure of a business’s financial health. But do you know what accounts payable actually means or the true impact accounts payable can have on your business? 

This guide will explain just what accounts payable is, why it’s crucial to businesses, how AP impacts cash flow, how to simplify the AP process, and automation can transform the full AP process. Read our article to discover the benefits of AP automation and what to look for in AP automation software. Make sure to check out the Resources section for free accounts payable webinars and whitepapers. 

What is Accounts Payable?

Accounts payable represents the money a company owes to vendors for products or services that the company has not yet paid, i.e., goods that the company has paid for “on credit” or “on account.”

Take a hospital, for instance. At any given moment, there could be needs for medical equipment, sanitizing supplies, new waiting room furniture, or even parking lot plowing services. However, the hospital may not have the funds on hand to pay these hefty bills immediately, so it pays on credit and logs those transactions and subsequent invoices in its accounts payable.

In larger companies, there are entire accounts payable teams to track invoices and ensure vendors are paid on time. The accounts payable department is also responsible for reflecting the total outstanding amount owed on the company balance sheet so investors and leadership have a good sense of cash flow.

The Accounts Payable Process

The main accounts payable process includes the following steps:

  1. Purchase orders
  2. Receiving reports or good receipts
  3. Vendor invoices
  4. Three-way matching
  5. Review and processing of payments

View our Infographic and learn about the Accounts Payable Process at length 

What is the Difference Between Accounts Payable and Accounts Receivable?

Accounts receivable is usually mentioned in tandem with accounts payable. That’s because they both handle invoices, but they’re on opposite ends of the accounting spectrum. While accounts payable represents liabilities of debts that a company owes, accounts receivable represents assets in the form of money owed to the company.

So when your business pays a vendor on credit, your accounts payable team will record an entry on their books, whereas the vendor will add your payment as an entry to their accounts receivable ledger. Find out more about how accounts payable and accounts receivable are different.

Discover the Differences Between AP and Accrued Expenses and Between AP and Notes Payable

Why Accounts Payable Matters

There are countless reasons why accounts payable is critical to your company. An organized AP department prevents costly errors like paying invoices twice or failing to pay on time—errors that not only cost your business money but negatively affect the company’s credit rating.

Externally, maintaining an efficient accounts payable department that issues timely payments promotes a steady financial reputation, as well. Investors and suppliers are more inclined to work with a company that doesn’t have severe liabilities. Some vendors even offer discounts to buyers who resolve accounts payable ahead of a deadline.

How Accounts Payable Impacts Cash Flow

Perhaps the most important function of accounts payable is that it allows companies to better assess the state of their financial affairs and ultimately spot opportunities to save or free up money.

Using what’s called an accounts payable balance, you can see how many products or services your company is purchasing on credit versus paying in cash. You can use this information to strategically prioritize which balances should be paid first and which payments can wait. This methodical repayment helps the company keep enough cash on hand to stay afloat without incurring more debt or to tackle large, costly projects.

For example, say a state transportation department is set to design and build an urban interchange to create more efficient traffic flows. Such an initiative would require a whole suite of new staff. In this case, postponing other bills can buy the agency time and money to get that new team off the ground.

By the same token, putting off payments can be dangerous. It increases the risk of missing payments in the future or incurring fines for late payments. This could cost your company more in both dollars and reputation in the end. It all depends on the level of risk you want to take and the skill and foresight of your accounts payable department.

6 Tips for Your Accounts Payable Process

Staying on top of accounts payable is paramount to running a successful and sustainable business. Below, we outline six steps to reduce friction in your accounts payable processes.

1. Ensure you’re recording accounts payable accurately in your books

Accurate records are everything in the world of accounts payable. One number or decimal out of place can quickly spiral into a costly mess. The first step is to record accounts payable data accurately and comprehensively. You should import every bill into your accounting software in near-real-time, with the vendor’s name and point of contact also readily accessible. Without taking these precautions, leadership and other stakeholders who rely on your company’s financial statements will be basing their decisions on inaccurate depictions of the company’s financial position.

2. Add reminders of due dates in your calendar

Another way to optimize accounts payable is to record the due date of each invoice as a reminder in a shared calendar. Ideally, there will be multiple reminders for each invoice, staggered well ahead of the due date to account for any lag in processing on the vendor’s end. In addition to basic information like the vendor, payment due, and invoice number, those reminders should also list who is responsible for ensuring the payment goes through. Setting up these reminders helps avoid repeated late payments, which, on top of late fees, may lead to vendors either demanding cash up front or terminating their relationship with you altogether.

3. Keep a cash cushion

Just like a personal bank account, a company’s bank account should always have a cushion. Be sure to keep several months’ worth of planned expenses on hand, just in case. Aside from putting aside a small portion of profits regularly, waiting to pay bills, so long as it isn’t detrimental, can be another way to add to the cushion. If margins are tight, paying an invoice early might mean there isn’t enough liquid cash to pay for unexpected expenses.

4. Rely on purchase orders

A purchase order, or PO, is a document that summarizes what a company ordered from a merchant. It should include information like the date it was prepared, a unique reference number, the vendor’s name and point of contact, the company’s name and point of contact, descriptions and quantities of purchased items, and the shipping method. Given the level of detail they include, POs are excellent paper trails that can be useful for auditing purposes, to have for reference in case of future disputes, and for generally tracking purchases on a large scale. Moreover, non-PO invoices are not suitable for three-way matching, which makes them far less safe and more difficult to process. These can easily lead to duplicate payments and other issues, so they should be avoided.

5. Operate on a paperless system

Paper is both easy to lose and hard on the environment. Consequently, many vendors offer electronic invoicing. Unlike paper invoices, electronic invoices are easy to search for, don’t require additional physical storage, and can be effortlessly imported into your accounting software. Plus, payments are easier to schedule and send electronically, and they come with an automatic receipt. If a vendor still insists on using paper, scan each invoice and log it appropriately in your accounting system. This makes it much less likely that you accidentally recycle or misplace it.

6. Find ways to automate your accounts payable workflow

Though the above tips support a robust workflow, there’s still potential for human error. While everyone makes mistakes, mistakes in accounts payable can be particularly costly. Failing to account for bills creates problems for financial forecasting teams, misguides leadership, and harms supplier relationships. Luckily, there are some fantastic tools that can automate accounts payable processes. Look for tools that streamline your most tedious or error-prone processes, like invoice data entry and approvals. And be sure that these tools can integrate into legacy systems that might be costly to replace, like your ERP.

Common Accounts Payable Issues and How to Solve Them

Learn how to prevent accounts payable problems that commonly haunt your office, plus how to improve your overall accounts payable department.

Top 12 KPIs Every AP Team Should Measure

Discover the top 12 accounts payable KPIs to track to increase performance in your AP department and how automation can help you improve them.

9 AP Trends To Help You Stay Competitive in 2023

Learn how to get your AP department ready for digital conversion, payment process automation, and other critical changes for the future of B2B payments.


MHC AP Automation Buyer’s Guide

Is your AP team ready for 2023? Embrace the advantages of AP process automation. Download the MHC AP Automation Buyer’s Guide to find out more! 

What is Accounts Payable Automation?

Accounts payable automation is the technology that shifts the onus of tedious, traditionally manual accounts payable tasks from human team members to software. Typically, accounts payable automation software takes over tasks like receiving invoices, invoice processing, getting approvals from responsible parties, managing documents, noting discrepancies, processing payments, and more. Regardless of what steps it handles, an accounts payable automation tool exists to help streamline processes.

In business, there are always challenges to combat and AP automation helps remedy some of those issues, which can include:

  • Manual data entry
  • Missing invoices
  • Manual invoice routing
  • Slow approval times
  • Low visibility
  • High processing errors

One of the most substantial drawbacks in accounts payable is the time it takes to review, process, and approve invoices for payment, which is exacerbated by the fact that invoices are often decentralized and accounting departments are frequently coping with a high number of discrepancies and exceptions. So what is AP automation? A trusted solution to the troubles of manual accounts payable operations.

Traditional AP vs. Automated AP Process

It’s not just the number of steps. It’s how involved each step is and how many points of error each step can potentially introduce. In traditional AP, there are so many moments in the process where something can go wrong- a typo can occur, an invoice can be missed, an approval can get lost. Some of these issues are simply a pain to fix. Some can be downright catastrophic to your business. When automating your AP process, you’re setting up a series of automated workflows that ensure there are fewer touchpoints. You get closer to straight-through processing, ensuring higher quality data and quicker processing times, with accounts payable automation software.


  1. Manually receive and upload all incoming invoices
  2. Route invoice for approval
  3. Review and approve invoice data
  4. Record approval and post update to the system
  5. Assign GL coding and key ACH batch
  6. Print checks or ACH batch
  7. Review checks or batches and authorize the release of payment
  8. Sign and scan checks
  9. Send payment
Traditional AP vs. Automated AP Process Illustration


  1. Receive invoice
  2. Workflows triggered submitting invoice for data extraction
  3. OCR exceptions reviewed (as needed)
  4. Route invoice based on automated business rules
  5. Approver receives notification and approves/purchase order matches
  6. ACH file/check batch automatically created and submitted to bank or cloud printer


The Benefits of Automating AP and Invoice Processing

There are many noteworthy benefits that come with automating the processes an accounts payable department handles, including:

1. Saving time

Accounts payable automation leads to significantly faster invoice processing—particularly if you’re using optical character recognition (OCR) software to scan invoices and sidestep manual entry of invoice data. In fact, the Institute of Finance and Management’s (IOFM) 2019 Efficacy Benchmarks report found that accounts payable departments that implemented automation processed roughly twice as many invoices per full-time employee compared to organizations that had less automation. That sort of time saved means teams have more capacity to work on more complex and high-value work.

2. Reducing errors and data redundancy

Errors and data redundancy are inevitable with a manual accounts payable process. Indeed, researchers have documented that people’s error rates range between one and four percent for spreadsheet data entry. Software that automates accounts payable can drastically reduce mistakes since it eliminates the need to manually key data from invoice headers and line-item data.

3. Easily locating and tracking payments

If you’re dealing with physical invoices, all too often, those papers get lost in the shuffle and are nearly impossible to track. Accounts payable automation software often requires organizations to digitize and go paperless. As a result, all invoices and data will be in one place, making it easier than ever to locate and track them.

4. Accessing invoices from anywhere

Another result of the shift to digital documents is that accounts payable team members and other employees can access those documents from their home, office, or just about anywhere. Such accessibility streamlines workflows, saving even more time, and avoiding headaches.

5. Saving money

All of these other benefits—easier access to and tracking of invoices, fewer errors, and less time spent on data entry—often add up to lower costs and actual discounts. By automating accounts payable processes, you’ll spend less on labor and save on the high costs of missed, late, and duplicate payments. You can also take advantage of early payment discounts that may potentially save you hundreds, thousands, or even millions, depending on your company’s invoice volume and size.

How Much Can AP Automation Software Do for Your Company?


of people see a quicker approval of invoices when using automation software


of people see reduced errors when using automation software


of people see increased employee

How to Automate Accounts Payable

Knowing the benefits of accounts payable automation is one thing, but figuring out how it will work within your AP workflow is another.

These days, automation solutions are typically cloud-based, which enables companies to utilize and access the tool anywhere there’s an internet connection. (In the event you’ve chosen an on-premise solution, users won’t be able to access the information as easily, plus, your IT team will need to set it up and maintain it.)  Automation solutions also tend to play nicely with major ERP systems like Infor, Oracle, and Microsoft.

Aside from those high-level capabilities, what does it look like when you add automation into the accounts payable equation? Depending on the solution, there are many steps of the accounts payable process where automation can make a difference.

First and foremost is invoice processing. Software can convert any incoming invoices that you receive into a digital format. (You’ll likely also be able to scan physical invoices into the system.) Then, OCR technology will extract the invoice information with minimal to no verification. To increase straight-through processing in the future, quality software can train itself based on any verifications made by humans, saving you even more time and money down the line.

Once the data extraction process is complete, the invoice image and data will make its way to your ERP system where it will live with and be linked to other documents critical to accounts payable, like purchase requisitions and purchase orders. Often, you’ll be able to automatically route invoices for approval, too.

Lastly, authorized users will be able to view and retrieve approved invoices directly from your ERP system whenever they’d like.

Though this isn’t a comprehensive overview of every step that can benefit from automation, these are the ones that benefit the most.


Discover Our AP Automation Solutions

Find out how to simplify the processing of invoices and payments while reducing costs, errors, and time-consuming tasks with MHC NorthStar! Explore the features and book a free demo today!

What to Look for in Accounts Payable Automation Software

While the above benefits are part and parcel with a solid accounts payable automation solution, know that not all software is created equal. It’s important to do your research and consider all of your options. Look for tools that offer the following:

1. Seamless integrations

If you opt for accounts payable automation software, invoice processing and other tasks will occur outside of your ERP.  Because of that, it’s essential for whatever solution you land on to seamlessly integrate into your ERP and other critical, legacy systems. This way, you can ensure information transfers from point A to point B without any issues. If your organization has already invested in a specific ERP software, don’t settle on an accounts payable automation tool until you’re certain the two are compatible.

2. Self-serve portals for vendors

Vendor relationships can make or break your business. One easy way to maintain a good relationship with vendors is to anticipate their needs and questions with self-serve portals. Software with this feature enables suppliers to track payments, access payment history, and even check your inventory levels of their product.

3. Easy-to-use interface

Even the best tool is useless if no one uses it. As such, everyone involved in the accounts payable process should be able and willing to use the software with ease. Team members need to be able to access data and various functions quickly so they can keep work flowing. If the tool is overwhelming or requires a great deal of training to understand, onboarding will be challenging at best. At worst, employees may stick to their manual accounts payable tasks instead.

4. Customization

Your organization is unique. Therefore, it requires an accounts payable automation software that can meet its needs, not the other way around. You should be able to pick and choose settings like invoice automation exceptions and tiered approvals, so that employees can perform their daily tasks easily and efficiently. If you’d like your invoices to be approved by managers, for example, it’s essential that the software allows you to easily route them.

5. Automated and Robust Reporting

Automated and robust reporting is another factor to consider. It gives you visibility into the status and history of invoices, helping uncover opportunities to improve your workflow. For example, you may realize your company consistently pays a certain vendor on time, rather than early, causing you to miss out on their early payment discount.

Start Modernizing Your AP Process Today

When accounts payable acts as a well-oiled machine, companies have sufficient cash to pay for exciting projects while still paying the bills on time. However, it can take time to get to a stage where things are running smoothly.

Request a Demo Image

Fortunately, MHC offers accounts payable solutions that modernize documentation and easily facilitate transactions. From automated invoice processing and approvals to easy document tracking and self-service document access for vendors, MHC saves accounts payable teams time and money, all while increasing visibility. Discover what MHC NorthStar can do for your AP department

Though you know what to look for in a solution, deciding which tool is right for you can be tricky. MHC can help. Its powerful OCR technology makes invoice processing a breeze. Plus, tiered approvals, vendor self-serve portals, and an intuitive interface smooth out bumpy workflows, saving everyone time and money. Ready to improve your accounts payable process?

Request a personalized demo and see our platform in action today!

Accounts Payable FAQ

In an environment where making payments correctly and timely is of the utmost importance, three-way match is a vital process within accounts payable. Using a process of cross-referencing the purchase order, the receipt of goods/services, and the vendor’s invoice, you verify the purchase process from request to payment. Make sure you never pay an invoice in error – whether it be under/overpaying or duplicating payments.

Optical character recognition (OCR) is a method to scan, digitize, transform, and store handwritten or printed text documents into your accounts payable system. Eliminate manual intervention, as employees no longer have to physically type in invoice information. Ensure that the data is accurate, and time is saved utilizing technology that learns with repeated data exposure to improve its ability to read, clean, and translate incoming data, capturing data like product numbers, prices, and payment dates.

Simply put, digitizing all data within your accounts payable system encourages greater accuracy in the recordkeeping and transcription process. Without manual intervention, it is less likely that data is entered incorrectly from the very start of the process. Streamlining your workflows and incorporating more comprehensive documentation of your data makes for fewer audit risks and potential complications.

In any company, a change in process will introduce some natural complications, and pushback from employees can bog down the move towards advancement. However, our proven customer service and support team is well known for our ability to guide users through the process, clearing up any confusion and providing them with the tools and knowledge needed to make accounts payable automation a success. Best practices developed over time will reduce stress on your overall process as you take a step into the future of accounts payable.

Currently, in a traditional AP workflow, invoices are generally emailed to each approver through a complicated process that can easily experience bottlenecks. Whether it be approvers who are out of the office or whose inboxes are simply overflowing, from end-to-end in the invoice approval process, there are several steps that can cause disruptions and delays. However, with automated invoice approval, the process begins with paper and digital invoices being intelligently captured. From there, you have the freedom to craft and manage your own workflows, identifying alternate approvers and triggering separate workflows if discrepancies are suspected. Removing the physical capture and routing of invoices through your organization saves time, money, and manpower.

Automating your accounts payable process using AP automation software avoids duplicate payments. Auditing features search for erroneous payments made, including duplications. By cross-referencing internal information and making sure they’re completed after the payment has been made, duplicate payments made in error are all but eliminated.

It’s hard to avoid, manual processes simply open you up to fraud. When manual intervention is required, it’s easy for malicious parties to be able to game the system. AP automation removes those human elements, ensuring that fraud is all but impossible. AP automation software allows for audits wthat will identify any signs of duplicated, incorrect, or invalid payments that could be seen as fraud.

Integration with other accounting systems widely used with your company are vital to enhancing the efficiency of accounts payable automation software. Ensuring that all information flows from a central location helps reduce errors, minimize delays, and maximize your work hours. With a couple of decades of experience, MHC has simplified and perfected the integration process with major ERPs such as Infor, Oracle, etc.

In the end, your vendors and suppliers simply want to be paid on time (or early, if at all possible). Each time a payment is made late, you lose the trust of your vendors… vendors you rely on to be able to run your business. Automated workflows within accounts payable automation software greatly improve the invoice-to-pay timeline, making sure that invoices aren’t stuck with an approver who happens to be out of the office or waiting on an exception.

It’s a cliché, but it’s a cliché for a reason. Time is money. By automating your AP process, you’re not only saving on precious manpower (freeing your employees up for more value-added tasks), but you avoid late payment fees and can potentially take advantage of offered early payment discounts.

Accounts Payable Automation Resources

Watch Our Accounts

AP Automation is a Necessity: Getting Leadership Onboard

We all know automation is necessary. But how do we convince our leaders that automation is necessary when they don’t fully understand our processes and compliance?

3 Ways AP Can Help Businesses Weather an Economic Storm

Economic storm clouds are gathering in 2023. Join us for this webinar as our speaker Mark Brousseau shows you how AP can help a business thrive and succeed, no matter the economy.

Leading Teams to AP Automation Success

Learn how high-performing teams lead to effective implementations, the characteristics of high-performing teams and team development models to increase team cohesiveness.

5 Trends Accounts Payable
Leaders Must Know for 2023 

In 2023, 5 trends will accelerate the transformation of the AP profession. Join us as our speaker  Mark Brousseau reveals the the dangers of being caught unprepared. 

Your Organization’s Payments
Might Cost More Than You Think

Late payments. Inefficient processes. Human errors. To get on the path to success, Lynn Larson, a B2B payments veteran, provides a broad perspective of what comprises P2P processes.

Payment automation SM Feature Image

Find out what Days Payable Outstanding (DPO) is, how to calculate it, what a high DPO means for business, and how keeping track if it benefits your business.

Find out more >

Order Processing docs SM Feature Image

Find out all about remote invoice approval – what it is, what the process looks like, and the benefits your company reaps by using an invoice automation solution.

Find out more >

Explore Our Accounts

Download Our Accounts

AP Automation: A Buyer’s Guide
Discover just what AP automation is and how it can help your company advance with confidence.

The 5 Chalenges of AP
Brian Rosenberg of TRG Consulting has identified the five challenges thrown at payables teams across the globe.

8 Ways Document Automation Makes Accounts Payable Easy
Learn how to eliminate data preservation associated costs and engage in strategic decision making, and much more.

How to Sell AP Automation to Your Boss
Create your own Business Case for AP Automation that will convince your boss that you’ve found a saving solution for the company. 

Introducing MHC NorthStar
We streamline and automate your most critical content-heavy processes in a flexible, scalable, cost-effective cloud environment.


Get to Know MHC!

Automate Processes.
Empower People. Reach Your Goals.

From document capture and content creation to employee self-service and other critical use cases across the enterprise, you can combine and configure MHC’s automation solutions to empower teams to meet goals today – and for the long game.

Download our guide and find out how MHC Automation can help you improve service, manage compliance, and drive ROI.


Stay in the know!

Sign up and have our newsletter delivered right to your inbox. Stay up to date on everything happening in the AP and CCM worlds!

View Our Latest Posts

       Explore our resource galleries

1. Request a personalized demo.

2. Download one of our whitepapers.

3. Share this article on social media.

Scroll to Top

JUNE 27  |  11 AM CT  |  ZOOM

Presenters: Stephen Kwiatkowski (Managing Consultant, Elire) and
Nick Fritz (Solutions Engineer, MHC)

JUNE 20  |  12 PM CT  |  ZOOM

Presenters: Michael Pfeffer – Senior Director, Oracle ISV Applications and Luke Steckler, Channel Account Executive

Sign up and have our newsletter delivered right to your inbox. Stay up to date on everything happening in the AP and CCM worlds!

This website uses cookies to ensure you get the best experience on our website. By continuing to browse on this website, you accept the use of cookies for the above purposes.