Picture this: your accounts payable team is drowning in a sea of paper invoices, manual data entry, and endless follow-ups with vendors. Payments are consistently late, and you're left wondering where all your money is going. Sound familiar?

The solution lies in implementing a Full Cycle Accounts Payable Process. It helps companies to process invoices efficiently, pay on time, and maintain good vendor relationships. 

This guide explores the key components, benefits, and best practices of the Full Cycle Accounts Payable Process. Whether you're overhauling your current process or starting fresh, it helps you achieve accounts payable excellence.

Let's get started.

What Are Full Cycle Accounts Payable?

Full Cycle Accounts Payable (AP) is a comprehensive process that manages the entire invoice lifecycle from receipt to payment, including capture, validation, approval, processing, payment, and reconciliation. It also includes data extraction, matching against POs and vendor data, approval workflows, payment execution, bank reconciliation, vendor management, and reporting to optimize the AP function.

You might also hear it referred to as AP automation, end-to-end AP, or procure-to-pay. The primary purpose of Full Cycle AP is to ensure you pay invoices on time and accurately while maintaining strong vendor relationships and financial control.

To do this, you'll need to work together with the company during the process to agree on:

• Invoice Receipt and Processing: Efficiently capture and process invoices, whether they arrive in paper or electronic format, using technologies like OCR and AI.
• Invoice Validation and Approval: Verify the accuracy of invoices, match them against purchase orders and receipts, and route them for approval based on your predefined business rules.
• Payment Processing: Initiate payments to your vendors through various methods such as checks, ACH, or virtual cards, while taking advantage of early payment discounts when possible.
• Reconciliation and Reporting: Reconcile payments with bank statements, update your financial records, and generate reports for better visibility into your AP performance and cash flow management.

To increase the chances of success, it's important to create a detailed implementation plan that outlines the current state, desired outcomes, scope, stakeholders, and timeline for the project.

Best practices for managing the full cycle accounts payable process

Managing the full cycle accounts payable (AP) process can seem daunting at first, but it's achievable with careful planning, organization, and communication. 

Here are some tips and best practices for managing a successful accounts payable process, broken down into three key activities:

1. Setting up an efficient accounts payable system

2. Building out an accounts payable workflow

3. Executing a successful accounts payable process

1. Set up an efficient accounts payable system

How do you introduce an efficient accounts payable system? By positioning it as a way to improve financial control and cash flow management rather than just a bureaucratic process.

If your organization is showing signs of needing a more structured AP process (you might hear mentions of late payments, lost invoices, or difficulty tracking expenses), it's time to implement a comprehensive  AP system.

While it's true that an AP system requires customization to fit your organization's needs, it's important to position it as a professional, organized, well-oiled process—not as an ad hoc solution you're coming up with on the spot.

Introducing it as a common practice for how successful businesses manage their finances can help instill confidence in your team—especially if they've never worked with a formal accounts payable process before and are hesitant to change.

To get buy-in on implementing an AP system, you'll want to anchor around your organization's financial goals—not force them into processes that may be useful down the road but won't help improve efficiency in the short term.

To do this, ask questions upfront like:

"What are our current pain points in managing vendor payments?"

"How much time is our finance team spending on manual invoice processing?"

"What level of visibility do we need into our outstanding payables?"

"After implementing the AP system, what would success look like for our organization?"

The conversation shouldn't feel like a mandate, but rather building a shared plan that leads to improved financial management.

2. Build out an accounts payable workflow

Once you have a commitment to implement an AP system, creating a clear workflow is necessary to ensure the success of the process and communicating that success to stakeholders.

You could do all this work in spreadsheets or basic accounting software, but it can be messy to track progress or make adjustments as you go along.

Managing your AP process with a dedicated accounts payable or ERP system instead gets you started on the right foot—instilling confidence in your team by providing a hub for them to track the progress of payables.

Centralizing all communication, approvals, documentation, and questions related to the ongoing AP process in a single system greatly simplifies the process for your finance team.

While you can tailor your AP workflow to your specific organization, it should typically include these standard steps:

1. Invoice receipt: This step involves receiving invoices from vendors through various channels (email, mail, or electronic data interchange).

2. Invoice processing: Here, you'll want to outline the process of entering invoice data into the AP system, including vendor information, invoice number, amount, and due date.

3. Invoice approval: This step involves routing invoices to the appropriate personnel for review and approval based on predefined rules.

4. Payment scheduling: Once approved, invoices are scheduled for payment based on due dates and cash flow considerations.

5. Payment execution: This involves the actual disbursement of funds to vendors through various payment methods (e.g., check, ACH, wire transfer).

6. Reconciliation and reporting: The final step is reconciling payments with bank statements and generating reports for financial analysis and auditing purposes.

3. Execute the accounts payable process

Once you've got your AP process underway, the work isn't over! 

Here are some tips for executing a best-in-class accounts payable process:

Stay consistent: Don't deviate from the established workflow—this is the quickest way to lose control over your payables. Schedule routine reviews of the AP process with an agenda shared ahead of time, and keep notes in your centralized system to make sure items are followed up on by your finance team.

Over-communicate: Never assume that hearing crickets from the team during the AP process means they're having a seamless, enjoyable experience free of questions—chances are it's the opposite. Proactively reach out to make sure they aren't silently struggling with some aspect of the process, and quickly work to resolve any issues.

Continuously improve: Seeing opportunities for improvement? While you'll want to be mindful of not overloading your team with constant changes, look for opportunities to automate processes, implement new technologies, or provide additional training that will build a more efficient AP process and strengthen your financial management.

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💡Tip: Many AP systems offer analytics that let you track key performance indicators like days payable outstanding (DPO), on-time payment percentage, and cost per invoice. These metrics can help you identify areas for improvement and demonstrate the value of your AP process to stakeholders.

Accounts Payable Vs Accounts Receivable

Accounts Payable (AP) and Accounts Receivable (AR) are two fundamental aspects of a company's financial operations. AP represents the money a company owes to its suppliers, vendors, and creditors for goods or services received. It's considered a liability on the balance sheet. Whereas , AR represents money owed to the company by its customers for goods or services provided on credit. AR is recorded as an asset on the balance sheet. 

While AP involves managing outgoing payments, AR focuses on collecting incoming payments. Both play crucial roles in maintaining a company's cash flow and financial health.

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Benefits and Challenges of Accounts Payable

Accounts Payable (AP) offers several benefits to businesses, including improved cash flow management, better supplier relationships, and enhanced financial accuracy. It helps companies optimize their working capital by timing payments strategically. 

However, AP also presents challenges. These include managing high transaction volumes, ensuring payment accuracy, preventing fraud, and maintaining compliance with tax regulations. Inefficient AP processes can lead to late payments, missed discounts, and strained vendor relationships. 

Balancing these benefits and challenges is crucial for effective financial management.

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Strengthen Your Accounts Payable Process with Spendflo

If you're ready to optimize your accounts payable operations and gain clear visibility into all your vendor payments, use a spend management platform like Spendflo to make it happen.

With Spendflo, you can:

• Centralize all your invoice and payment data in one place: Get a comprehensive view of your payables, payment terms, due dates, and key vendor information all from one interactive dashboard—and even keep track of approval workflows, payment history, and more.

• Automate your AP workflow and approval processes: Set up invoice processing, automated approval routing, and match invoices with purchase orders so you can focus on strategic financial management, faster.

• Gain actionable insights for better cash flow management: Access detailed AP analytics, track key metrics like days payable outstanding (DPO), and get recommendations for optimizing payment timing to make your accounts payable process as efficient and effective as possible.

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Sign up for a free demo with Spendflo to see how it can transform your AP visibility and vendor payment management.

Frequently Asked Questions About Full Cycle Accounts Payable 

1. What are the first 4 steps in the accounts payable cycle?

The first 4 steps in the accounts payable cycle are:

1. Receiving the invoice

2. Reviewing and approving the invoice

3. Recording the invoice in the accounting system

4. Scheduling the payment

2. What is the cycle time in accounts payable?

The AP cycle time typically refers to the period from invoice receipt to payment.

It usually ranges from 30 to 90 days, depending on the company's payment terms.

Efficient AP processes aim to optimize this cycle time while maintaining accuracy and control.

3. What is the P2P cycle in AP?

P2P (Procure-to-Pay) is the end-to-end process from purchasing goods/services to paying suppliers. It includes steps like purchase requisition, purchase order creation, goods receipt, invoice processing, and payment execution.

4. What is a 3 way match in accounts payable?

A 3-way match is a control process that compares the purchase order, receiving report, and supplier invoice. It ensures that the ordered items were received as expected and that the invoice matches the agreed terms. This process helps prevent errors and fraud by verifying the accuracy and legitimacy of payments.

5. What is the lifecycle of accounts payable?

The AP lifecycle includes receiving invoices, validating and approving them, recording the liability, scheduling and executing payment, and finally closing the payable. It also includes ongoing supplier management and financial reporting activities.

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