Accounts Payable Best Practices for Inventory-Heavy Businesses
Accounts payable is one of those functions that nobody thinks about until something goes wrong. A supplier stops shipping because an invoice went unpaid for 60 days. An auditor finds a duplicate payment. A vendor charges the wrong price and nobody catches it for three months.
These aren't unusual events. They happen in businesses where AP is treated as a paperwork function rather than a financial control function.
Here's what AP should look like when it's working well.
The Three-Way Match: Your Most Important Control
Every supplier invoice you pay should be validated against two other documents before payment is authorized: the purchase order that authorized the purchase, and the goods received note that confirmed delivery.
This is three-way matching, and it's the single most important AP control for inventory businesses.
The check is simple: do the quantities on the invoice match what was ordered and what was received? Does the price match the PO? If both answers are yes, the invoice is legitimate and payment can proceed. If either answer is no, the invoice gets flagged for investigation.
Three-way matching catches:
- Suppliers billing for goods not yet delivered
- Invoice prices that don't match the agreed PO price
- Quantity discrepancies between order and delivery
- Duplicate invoices for the same delivery
Without this process, overpayment to suppliers is not a matter of if — it's a matter of when and how much.
The Approval Workflow That Keeps Spending Controlled
Not every invoice should require the same level of approval. A utility bill for Rs. 5,000 and a raw material invoice for Rs. 15,00,000 should not follow the same process.
Define tiered approval authority:
- Invoices under a defined threshold: department-level approval
- Invoices above that threshold: finance manager approval
- Invoices above a higher threshold: director or owner sign-off
This keeps routine payments moving quickly while ensuring high-value invoices get appropriate scrutiny. The approval bottleneck problem in AP is almost always caused by routing everything through the same approver regardless of value.
The approval should happen in your system — not in email. When approvals live in email threads, context gets lost, approvals get buried, and there's no reliable audit trail of who approved what and when.
Supplier Statement Reconciliation
Once a month, reconcile your supplier statements against your AP ledger. This catches:
- Invoices the supplier has issued that you haven't received or recorded
- Payments you've made that the supplier hasn't applied
- Credit notes that aren't reflected in either system
Many businesses skip this. The ones that skip it regularly find surprises — usually at the worst possible time, like when they're trying to place an urgent order and the supplier says their account is on hold.
Payment Timing: Strategy, Not Habit
When you pay suppliers matters for your cash flow. Most businesses pay invoices when they're due, or when they remember to. Better businesses have a deliberate payment calendar.
Early payment discounts: Some suppliers offer terms like "2/10 Net 30" — a 2% discount if you pay within 10 days instead of 30. On a Rs. 5,00,000 invoice, that's Rs. 10,000 saved. Annualized, the return on paying 20 days early to capture that discount is roughly 36%. That's a better return than almost any other use of short-term cash.
Batch payment runs: Processing payments in scheduled runs (twice a week, weekly) is more efficient than paying individually as each invoice arrives. It also makes cash flow forecasting more predictable.
Don't pay early without a reason. If terms are Net 30 and you're paying on day 5 because that's when the invoice was processed, you're giving up 25 days of float for no benefit.
This connects to your broader working capital management — AP payment timing is one of the levers you control directly.
The Duplicate Payment Problem
Duplicate payments happen more often than businesses realize, and they're almost always a process failure:
- The same invoice received twice (email and post) and processed twice
- An invoice re-submitted by a supplier after a payment query, and processed again
- A credit note applied to a different period, and the original invoice also paid in full
The fix is systematic: every invoice needs a unique supplier reference that's checked against existing records before processing. If that supplier reference already exists in your system, the invoice goes to a review queue rather than processing automatically.
This is trivial when you have a system that enforces it. It's unreliable when it depends on someone manually checking.
Accruals: The AP Task Most Businesses Do Badly
When a month ends, you likely have received goods that haven't yet been invoiced. Those are liabilities — you owe money for them even though you haven't received the bill. For accurate monthly financial reporting, these need to be accrued.
Most businesses either don't accrue at all (understating liabilities) or accrue a rough estimate (which may be significantly wrong).
The cleaner approach: your goods received note records at the time of receiving what the cost should be (from the PO). Using GRN-based accruals, you can generate an accurate picture of what you've received but haven't yet invoiced, priced from the agreed PO — without waiting for the supplier's invoice.
This is one of the main reasons that a fast month-end close requires tight integration between your inventory receiving process and your AP ledger.
The Supplier Relationship Dimension
AP isn't just a financial control function — it directly affects your supplier relationships.
Suppliers who are consistently paid on time, who receive accurate remittance advice, and who can resolve invoice queries quickly tend to prioritize your orders, offer better terms, and be more flexible during supply constraints.
Suppliers who regularly deal with late payments, query-resolution delays, and AP staff who don't have context give you proportionally worse service and terms.
Your AP process is, in part, a supplier relationship tool.
What Good AP Metrics Look Like
DPO (Days Payable Outstanding): How long it takes on average to pay invoices. Benchmark against your industry and your suppliers' payment terms. Too short means you're leaving cash on the table; too long means strained supplier relationships.
Invoice processing time: From invoice receipt to payment approval. Should be under 3 business days for standard invoices.
Duplicate payment rate: Should be zero with proper controls.
Early payment discount capture rate: What percentage of available early payment discounts are you actually capturing?
Supplier query volume: How often are suppliers contacting you about payment status or invoice queries? High volume signals an AP process problem.
Sevenledger's accounting software connects your purchase orders, goods receipts, and supplier invoices so three-way matching happens automatically — and approval workflows route invoices to the right person without email chains.