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Accounts Payable 10 Best Practices

Accounts Payable Best PracticesHere are 10 accounts payable best practices in no particular order.  Hopefully your A/P department can put a check beside each of these items.

1. Always pay from original invoices.  If you have to pay from a copy, be sure to check your records for the same invoice number and dollar amount.

2. Before paying any vendor, be sure there is a W-9 on file for them. This will save a lot of hassle at year-end when you need to prepare 1099s.  Fines for not complying with 1099 reporting requirements can be hefty.  Also, there is proposed legislation working its way through Congress and the Senate that would require businesses to issue 1099s for anyone paid over $600 INCLUDING corporations.  Be sure to watch this one — HR3408, The Taxpayer Responsibility, Accountability and Consistency Act of 2009.

3.  Ensure you have a policy about how invoice numbers are to be entered.  If you have a number of clerks all using their own rules about entering invoice numbers (like what to do with leading zeros), it will be difficult to track down anything.  Also, having a policy helps if there isn’t an invoice number.

4.  The person entering the invoice should be different from the person approving the invoice who should be different from the person signing the check.

5.  Have all invoices come to the accounting department first before being sent out for approval(s).  This way the invoice can be logged before it enters the black hole.

6.   Do not enter invoices as a batch.  Each one should be entered individually in order to have an audit trail.

7.  All invoices should have the account coding written on them as well as any notes about special handling.

8.  The amount of the invoice should be entered as billed even if you don’t plan on paying the full amount.  A credit memo can be entered and matched against the invoice later.  The key is to remember the audit trail.

9.  Have a new vendor welcome letter that you can send informing them of where invoices should be sent, what information you require to process their invoices (like a vendor ID number) and any forms you need completed.  Vendors will appreciate the information to ensure their payments aren’t held up.

10.  Watch your payables carefully to take advantage of any discounts being offered by vendors.  It can add up to a nice sum by the end of the year.

Feel free to add your own accounts payable best practices below.



Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

Great post and discussion!

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Randal Shields
Title: Consultant/CFO
Company: Randal Shields, CPA
(Consultant/CFO, Randal Shields, CPA) |

Laresa offers a very good list of items in operating the AP department.

What's outlined predominantly addresses an AP function working primarily off of paperwork submissions. In some companies, it's a different world with EDI invoice submission, posting and payment processing. Also depends on the company's ERP platform, type of business, goods receiving processes and related two or three way match requirements.

Having done considerable internal control reviews, here are a few more observations.

1 - Try to segregate who has access to add-change-delete vendors in the vendor master files from the actual processing of invoices for payment, and/or have someone in management monitoring this activity. Many of the systems I've looked at did not have the ability to print the changes made to the vendor master files, so controlling access can be critical to avoid potential theft and fraud.

2 - Set the AP systems master file configuration to a default setting that most represents the vendor type(s) used most frequently. Most systems have multiple vendor type categories that can be assigned. This simplifies the set up process, and prompts fields that must be completed. Typically this allows for a default GL code to be assigned. Below this security level, you can prohibit certain users from changing from the default GL code.

3 - Paper files - my preference is these are set up by VENDOR. Some larger companies I've observed file by process batch#. It's a real pain to have find multiple batches and pull multiple files when researching and reconciling issues.

4 - Make sure you understand how your system is assigning the GL month/year for accounting periods. I've seen where this was done wrong, and AP clerks used older invoice dates that drove the accounting period entry, having the effect to change financial results in closed periods that were not intended nor anticipated. Some of the lower end GL products I've seen use the invoice date field to control the accounting period entry.

5 - Have a control log mechanism over the checks being printed, whether the forms are pre-printed with numbers, or the check numbers are assigned by the system. This control log should be going to the person responsible for the bank account reconciliation, which should be independent of the AP staff.

Hope these add some value, Randy

Miriam Brennan
Title: Operations Accountant
Company: New Mountain Capital
(Operations Accountant, New Mountain Capital) |

Wouldn't the accounting software you are using let you know if you had entered a duplicate invoice number?

John Herndon
Title: Senior Director of Revenue Recognition.
Company: WideOrbit
(Senior Director of Revenue Recognition., WideOrbit) |


Here are some others that may create additions to your accounts payable best practices list, they are at least worth considering from a strategic standpoint.

1. Identify manual AP related reporting processes, such as expense reporting, and adapt to an automated processing and workflow approval methodology. I have performed this review of processes and upgrade in several companies. The minimal good news is that you will find significant savings in headcount reduction the greatest potential benefit is automation of SOX controls, given the current environment of ‘over SOX-ification’ I can guarantee there will be a lot of low hanging fruit.

2. Adapt current AP processing to an OCR environment. We all understand how manual AP can be, don’t settle for it rather adapt to the tools that are out there. OCR is fundamental in terms of set up and implementation. The software is user centric, easily configurable for data capture and ready for deployment in a matter of months.

3. ERP module integration, many of the tasks performed in general ledger groups can be incorporated into an ERP system. Module integration allows transactions to post automatically instead of manual posting; most external audits preclude the review of integrated postings and focus entirely on manual postings due to the higher risk of error and lack of education on the auditor side.

4. Examine functionality of ERP reporting environment, this does not involve the financial reporting modules per se but can also include module reporting tools used to close the books. In many cases you might find duplicate effort directed toward closing AP modules during month end due to ‘received not invoiced’ selected during AP set-up. Any AP department can find themselves easily losing a full day during the close process due to duplicate effort from limited reporting functionality.

I can go all day on the topic of process improvement, what can I say I have been around more than recycled glass. I have seen both the wrong way and the better way to perform many of the common tasks in accounting.

I hope this information is useful and serves as food for thought to the participants in this group.

Warm Regards,


Mark Von Der Linn
Title: Principal
(Principal, |

Would be nice if this site had a wiki area for best practices and the like so the membership could collaborate to create a library of docs that are complete and thorough. Perhaps there is a such an area I'm unaware of?

John Kogan
Title: CEO/CFO
Company: Proformative, Inc.
(CEO/CFO, Proformative, Inc.) |


Great observation. We have the Resource library tab which has scores of donated resources - everything from legal docs to processes and procedures - and it's all freely available to our members. The search capability is not where we want it to be just yet, but we are close to completing our upgrade of search across the site so that will make it much easier to find resources (and everything else on Proformative). We will have some upcoming programs to encourage our members to contribute to the Resource library so that we can build a resource much as you describe. Thanks again for your comment.

Bruce Heron
Title: Regional Finance Director
Company: LeasePlan Corporation N.V.
(Regional Finance Director , LeasePlan Corporation N.V.) |

Just checking - is self billing possible where you are? Thankfully all the awful manual workload you've outlined Laresa, is able to be eliminated in many of the countries I manage, while maintaining strong controls to prevent erroneous payment and maintain the necessary segregation of duties. To remove as many finger prints as possible from bits of paper from suppliers is the most ideal approach possible, which self-billing perfectly facilitates if your suppliers can accommodate the changes in their own processes needed to make it work.

Topic Expert
Deborah Godfrey
Title: Budget Administrator, Business Manager, ..
Company: Seeking Employment
(Budget Administrator, Business Manager, Project/Program Manager, Seeking Employment) |

I am a new comer to this site. I found this information to be very informative. Thanks for keeping us on our toes.

Mary Schaeffer
Title: Publisher & Editorial Director
Company: AP Now
(Publisher & Editorial Director, AP Now) |

While I concur with most of what Laresa has to say, there is one area where I disagree. The advice of only paying from an original invoice had a lot of merit in the past. However, today, it does not hold water. Many companies now email invoices. It is an accepted practice. And you can print a pdf 100 times and it will look like an original each time. So relying on the invoice being an original no longer offers any protection. You need to incorporate other verification checking routines into your controls and processes in order to insure you don't pay twice.