The Accounts Payable Process: How to Manage Bills, Payments and Cash Flow

Accounts payable can look simple: a bill arrives, someone pays it, and the payment appears in the bank account. In practice, weak processes can create duplicate payments, missed discounts, late fees, supplier frustration, inaccurate expenses and cash shortages.

A good accounts payable process is not about paying every bill immediately. It is about making sure the right bill is approved, paid once, at the right time, from the right account, and recorded correctly.

What is accounts payable?

Accounts payable is money a business owes suppliers for goods and services that have been received but not yet paid for. It normally appears as a current liability on the balance sheet.

BDC’s accounts payable guide emphasizes that the balance should be recorded promptly and reviewed regularly so owners can make informed cash-flow decisions.

Accounts payable versus accounts receivable

Accounts payable	Accounts receivable
Money the business owes suppliers	Money customers owe the business
Usually a current liability	Usually a current asset
Creates a future cash outflow	Creates a future cash inflow
Managed through bill approval and payment	Managed through invoicing and collection

The accounts payable process step by step

1. Receive invoices through a controlled channel

Use a consistent email address, upload tool or document process for supplier invoices. Bills sent to personal inboxes, field staff and multiple departments are easier to miss or enter twice.

Record the date received and preserve the original document. The CRA identifies purchase invoices, receipts, contracts, delivery slips and related correspondence as records that may support business transactions.

2. Confirm the supplier and invoice are legitimate

• Verify the legal supplier name
• Confirm the invoice number and date
• Check the remit-to address and banking information
• Review the description of goods or services
• Confirm the business actually ordered and received the purchase
• Investigate unexpected changes to payment instructions

The Competition Bureau warns Canadian businesses about fraudulent invoices and other scams designed to look familiar. New vendors and banking-detail changes deserve independent verification using trusted contact information.

3. Check for duplicates

Search by supplier, invoice number, amount and date before entering a bill. Suppliers may resend an invoice or include it on a statement, but the same obligation should not be paid twice.

BDC recommends paying from invoices rather than statements because statements can repeat invoices already recorded or paid.

4. Match the invoice to supporting documents

Where possible, compare three documents:

1. The purchase order or approved request
2. The delivery receipt, work confirmation or receiving record
3. The supplier invoice

This three-way match helps confirm the price, quantity and goods or services received before payment is authorized.

5. Code the expense correctly

Assign the bill to the appropriate:

• Expense or asset account
• Department or location
• Customer, project or job
• Tax code
• Reporting period

Consistent coding affects profit margins, project reports, budgets and tax filings. An equipment purchase should not automatically be treated the same way as a routine supply expense.

6. Route the invoice for approval

The person approving the bill should understand the purchase and have authority for the amount.

Invoice type	Possible approver
Project materials	Project manager
Department software	Department leader
Large capital purchase	Owner or executive
Recurring utilities	Designated administrator
Owner-related or unusual purchase	Independent authorized reviewer

Create approval thresholds so small routine bills do not require the same process as a large or unusual payment.

7. Enter the bill before payment

Recording bills when they are received gives the business visibility into what is owing, even when payment will happen later. Waiting until the bank transaction appears understates expenses and liabilities.

8. Schedule payment using terms and cash needs

Review:

• The invoice due date
• Available early-payment discounts
• Supplier relationships
• Upcoming payroll and remittances
• Expected customer collections
• Available cash and approved credit

BDC recommends aligning customer and supplier terms where possible. Paying much earlier than required can reduce cash flexibility, while paying late can create fees, supply disruptions and damaged relationships.

9. Authorize and release payment

Use a clear payment run and retain evidence of authorization. For higher-risk payments, separate the person who enters the bill from the person who releases the payment.

10. Record and reconcile the payment

Match the bank transaction to the approved bill. Reconcile supplier statements and investigate:

• Old unpaid invoices
• Unapplied supplier credits
• Duplicate bills
• Payments that did not clear
• Differences between supplier records and the general ledger

What is an accounts payable aging report?

An accounts payable aging report groups unpaid bills by due date or age. Common columns include:

• Current
• 1 to 30 days overdue
• 31 to 60 days overdue
• 61 to 90 days overdue
• More than 90 days overdue

Review the report regularly to identify upcoming payments, old disputes, missing credits and suppliers that may require immediate attention.

Accounts payable controls for small businesses

• Use one controlled invoice intake process
• Maintain an approved supplier list
• Independently confirm banking-detail changes
• Require supporting documents and clear descriptions
• Use approval limits
• Separate bill entry and payment release where practical
• Pay approved invoices, not statements alone
• Review duplicate invoice warnings
• Restrict access to payment platforms
• Keep an audit trail of approvals and changes

Accounts payable metrics to monitor

Total accounts payable

The total supplier balance currently owing.

Overdue accounts payable

The portion beyond agreed terms.

Average days payable

This estimates how long the business takes to pay suppliers. BDC notes that unusually high, low or volatile results can signal inefficient cash management or financial pressure.

Late fees and missed discounts

Track avoidable costs caused by process delays.

Duplicate or incorrect payments

Monitor errors and use them to improve controls.

How long should supplier records be kept?

The CRA generally requires businesses to keep required records and supporting documents for six years from the end of the last tax year they relate to, although some situations require longer retention. Records can include purchase invoices, receipts, contracts, bank information, delivery slips and electronic accounting records. Review the CRA’s current record-retention guidance for the rules that apply to your business.

Common accounts payable mistakes

• Bills remain in employee inboxes
• Statements are paid without checking the original invoices
• Supplier banking changes are accepted by email without verification
• Bills are recorded only when paid
• Approvals are verbal and undocumented
• Project or department information is missing
• Supplier credits are not applied
• Payment dates are chosen without reviewing cash needs
• One person controls supplier setup, bill entry and payment release

How Agile supports accounts payable

Agile helps businesses organize supplier bills, approvals, expense coding, payment information and reconciliations through a consistent bookkeeping process. Current accounts payable information also supports cash-flow planning and cleaner financial reports.

Learn more about Agile’s bookkeeping solutions, including accounts payable support, or review how Agile works.

Frequently asked questions

What is accounts payable?

Accounts payable is money a business owes suppliers for goods and services already received but not yet paid for.

Is accounts payable an asset or a liability?

Accounts payable is generally a current liability because it represents amounts due to suppliers in the short term.

What are the main steps in the accounts payable process?

The process normally includes receiving the invoice, verifying it, matching supporting documents, coding it, approving it, scheduling payment, releasing payment and reconciling the result.

What is three-way matching?

Three-way matching compares the purchase order, receiving document and supplier invoice before payment.

What is an accounts payable aging report?

It is a report grouping unpaid supplier bills by due date or how long they have been outstanding.

Should a business pay supplier bills as soon as they arrive?

Not automatically. Payments should follow approved terms, available discounts, supplier relationships and the business’s wider cash requirements.

How can duplicate payments be prevented?

Use controlled invoice intake, search for matching invoice numbers and amounts, pay from approved invoices rather than statements alone, and reconcile supplier accounts.

How long should Canadian businesses keep supplier invoices?

The CRA generally requires required records and supporting documents to be retained for six years from the end of the last tax year they relate to, although exceptions can apply.

Sources and further reading

• BDC: What are accounts payable?
• BDC: Average days payable
• BDC: Cash-flow management tips
• CRA: Business record requirements
• Competition Bureau: Common scams targeting Canadian businesses

This article provides general educational information. It is not financial, tax or legal advice for a specific business.