Accounts payable seems like a pretty simple and straightforward process.
You receive an invoice from a supplier or contractor, match it up against work done, and then get it paid.
Unfortunately, real life is a little more complex than that.
Some invoices are purchase order-based, while others aren’t.
Some come from one-off suppliers, others from regular vendors.
Refunds and credits have to be issued on occasion, and documents and records must be filed in a particular manner to maintain compliance with local legislation.
For all of these intricacies, you need an accounts payable policy.
An accounts payable policy will help you maintain a standard payment process, reduce fraud, and keep your team on the same page.
Whether you’re creating an AP policy for the first time or worried that your current policy is missing some important pieces, keep reading to learn the ins and outs of building an effective accounts payable policy.
An accounts payable policy helps your company follow clear rules, preventing fraud, maintaining consistency, and building strong vendor relationships
Clearly defined responsibilities for non-AP departments ensure timely invoice processing, purchase order handling, and adherence to proper documentation, enhancing overall efficiency
Your documented policy should include the purpose, policies, and procedures for accounts payable
Your accounts payable policy is the set of guidelines and procedures your organization establishes and follows to manage outstanding debts to suppliers and contractors (known as accounts payable).
AP policies vary between companies but commonly include rules and processes to follow with regard to invoice processing and payment, record-keeping, and approval workflows.
Your accounts payable policy is one part of the general AP workflow.
The accounts payable workflow details the complete end-to-end process from procurement through to payment and close-out, usually documented as a flowchart.
Your AP policy describes the regulations and processes to follow and the requirements that must be met as part of that workflow.
Documenting and distributing an accounts payable policy provides several important benefits:
Every organization’s accounts payable policy looks slightly different.
There is no “one size fits all” solution.
That said, when you examine the policies of various companies and institutions, you do start to observe some common trends. All of them outline the common procedures an AP team follows, for instance.
So, while the below doesn’t constitute a list of “must-have” sections for your accounts payable policy, it is a series of suggestions or ideas to get you started, inspired by real-life AP policies from the likes of the University of Iowa and the United Nations Population Fund.
The first three (Purpose, Policy, and Procedures) are the most commonly observed subheadings.
The first section of your accounts payable policy outlines the broad purpose of the document to come.
For example, here’s what Hudson County Community College states in its AP policy:
The purpose of this Policy on Accounts Payable is to ensure the security of Hudson County Community College’s (“College”) funds and the conduct of business according to the principles of accountability, completeness, timeliness, and accuracy. Guided by these principles, the College endeavors to make timely payment to vendors of verified and approved invoices in an efficient manner and to maintain complete and accurate records of accounts payable.
In the second section, you’ll list the specific policies your accounts payable department holds.
Here’s an example of one specific policy from the United Nations Population Fund:
For purchase order-based payments, discrepancies between the vendor invoice and thepurchase order greater than 10 percent or $1,000 USD or equivalent in local currency (thelesser of the two) must be resolved before the payment can be processed.
Common examples of policies to detail in this section include:
Your procedures section details the specific processes the members of your accounts payable department are to follow to complete certain tasks.
For example, the United Nations Population Fund includes a four-step workflow for the processing of purchase order-based payments:
Step 1: Verify details of invoice and ensure within allowable limit
Step 2: Create ‘receipt’ and complete Payment Request Checklist
Step 3: Review Payment Request Checklist, create payment voucher
Step 4: Payment is processed
Some of the most common procedures you’ll find in AP policies include:
Flowcharts are a helpful way to illustrate AP processes in a visual manner.
They are commonly used to illustrate approval workflows, which can be complex and vary depending on factors such as department, invoice amount, and whether or not a PO number is present.
Here’s how the United Nations Population Fund uses flowcharts in their accounts payable policy document:
The department responsibility section of your AP policy briefly describes the obligations of various non-AP departments within your organization as they relate to invoice processing, purchase orders, and payment processing.
Macomb Township provides a helpful example:
“Each department is responsible to ensure that invoices reach the Accounts Payable office in a timely manner. It is not the function of the vendor to bring invoices to Accounts Payable. Supporting documentation must accompany each request for payment. It is the duty of each department to ensure that all steps in the “purchasing through payment process” are to be followed in a prompt manner with proper authorization for transactions and all supporting documentation for payment prior to any submission to Accounts Payable. If proper documentation is not included with the request for payment, Accounts Payable will not process payment and the documentation will be returned and/or the department will be notified to provide proper paperwork. Authorized departmental signature(s) are required. Any documentation without the appropriate signature(s) will be forwarded back to the originating department for compliance.”
Some AP policies include a risk control matrix that describes how different risks should be handled and by whom.
The below is an example from the United Nations Population Fund:
You can use the below template as a starting point for your own accounts payable policy.
| Section | Description |
|---|---|
| Policy | |
| Procedures | |
| Process Overview Flowcharts | |
| Department Responsibility | |
| Risk Control Matrix |
