Accounts payable management—tracking and paying what you owe to vendors and suppliers—is often given less attention than accounts receivable. But poor AP management creates its own set of problems: damaged vendor relationships, late payment penalties, missed early payment discounts, and poor cash flow visibility.
The Three-Way Match
The gold standard in accounts payable is the three-way match: comparing the purchase order, the vendor invoice, and the receiving document to confirm that what was ordered, what was received, and what is being billed all match before payment is authorized. This process catches billing errors and prevents paying for goods not received.
Payment Timing Strategy
Pay on time—but not early. Early payment sacrifices your cash float without benefit unless the vendor offers a meaningful early payment discount (a 2/10 net 30 discount, for example, represents a 36% annualized return—almost always worth taking). For vendors without early payment discounts, pay as close to the due date as possible while remaining on time.
Key Takeaways
- Three-way match (PO, invoice, receipt) before payment approval prevents most billing errors.
- Pay on time but not early—unless there is a meaningful early payment discount offered.
- AP automation tools reduce manual processing costs and eliminate late payment penalties from oversight.
