Accounts Payable Best Practices: Cut Costs, Prevent Fraud & Improve Cash Flow
Following accounts payable (AP) best practices can significantly reduce processing costs through automation, prevent fraud with vendor verification and optimize payment timing to maintain 95%+ on-time rates. Even small businesses can see processing time drop by nearly 2/3 as they strengthen supplier relationships
Small businesses that optimize their accounts payable practices see immediate benefits: faster processing times, stronger vendor relationships and better working capital management. Businesses using automated AP systems reduced processing time from 10-14 days to 2–3 days.¹
Your accounts payable strategy directly impacts your bottom line. Organizations with inefficient procure-to-pay processes could face significant increases in operational costs over time.
What are accounts payable?
Accounts payable represent your company's short-term obligations to creditors and suppliers. These unpaid bills appear as liabilities on your balance sheet and affect your cash flow statement.
This can influence your business's financial health. Exceptionally high AP relative to revenue can limit access to financing or new credit. Paying bills immediately upon receipt may strain cash reserves and reduce operational flexibility.
The key is finding the right balance between timely payments and cash flow optimization.
Essential accounts payable metrics to track
Measuring your AP performance helps identify opportunities for improvement and lets you benchmark against industry standards. Here's a quick comparison of the four metrics that provide the clearest picture of your AP efficiency.
Days payable outstanding (DPO)
DPO measures the average number of days your company takes to pay suppliers. Here’s how it’s calculated:
Average accounts payable
(The average amount of money you owe to vendors)
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Cost of goods sold (COGS)
(How much it costs you produce your goods or services)
×
The number of days in the period
(365 for a year, 90 days for a quarter)
Most healthy businesses typically maintain a DPO between 30 and 60 days. Your ideal DPO depends on your industry and cash flow strategy.
AP turnover ratio
This figure shows how efficiently you pay suppliers. Calculate it by dividing total net credit purchases by average accounts payable. A higher turnover ratio indicates faster payment cycles. However, extremely high ratios might mean that you’re missing opportunities to optimize cash flow by strategically timing your payments.
Cost per invoice processed
Track your total processing costs, including labor, systems, overhead and error resolution. Manual processing typically costs $12–$18 per invoice, while automated processing ranges from $2–$4 per invoice.¹
Businesses that use automation to achieve processing times of less than five days see the most significant cost reductions.
On-time payment percentage
Monitor what percentage of invoices you pay by their due dates. Organizations with strong AP processes maintain on-time payment rates of 95% or higher. This metric can directly impact vendor relationships and your ability to negotiate favorable terms.
Common accounts payable challenges
Small businesses face three primary obstacles when managing accounts payable:
- Slow internal processes create payment delays even when cash is available. Complex approval workflows can lead to late payments that damage vendor relationships.
- Invoice accuracy verification becomes difficult as transaction volume grows. Without proper systems, businesses receiving dozens of monthly invoices struggle to catch fraud or billing errors.
- Cash flow optimization requires balancing immediate payments against maintaining adequate reserves. Poor timing decisions can either strain vendor relationships or limit operational flexibility.
Understanding the procure-to-pay process
Understanding your full cycle, from procurement to payment, helps identify bottlenecks and opportunities for improvement:
- Purchase requisition: Employee requests goods or services.
- Purchase order creation: Formal order issued to vendor.
- Goods receipt: Items delivered and verified.
- Invoice receipt: Vendor submits payment request.
- Three-way matching: Compare purchase order, receipt and invoice—particularly important for catching discrepancies and preventing duplicate payments.
- Approval workflow: Authorize payment.
- Payment processing: Send payment to the vendor.
7 Proven accounts payable best practices
1. Establish centralized invoice processing
Create a single, standardized entry point for all invoices, regardless of how they arrive—whether a dedicated email address, a vendor portal or an invoice management system.
Multiple email addresses, mail delivery issues and various submission methods create confusion and lead to missed payments; consistency prevents bills from falling through the cracks.
Digital centralization makes tracking easier and reduces processing time. Most finance leaders expect touchless invoice processing in 2026, though only 32.6% are currently at this level of automation.²
2. Implement automation for accounts payable
Paper invoices can arrive late, limiting your payment timing flexibility. Digital invoices provide immediate delivery and create searchable records for your accounting system.
AI-driven systems reduce manual work by 67–80%,³ automatically extracting data, matching purchase orders and flagging exceptions for review.
Cloud-based AP platforms account for approximately 60–64% of the total market,⁴ offering enterprise-level capabilities to small businesses. These systems typically pay for themselves within two years through reduced processing costs and improved accuracy.
Set up automatic payments for regular supplier bills. This ensures on-time payments while freeing your attention for strategic vendor relationship management.
3. Implement strong payment controls
Establish approval workflows that require sign-off before payment processing. Your CFO or designated accounting staff should review all invoices to ensure proper tracking and authorization.
Use your accounting system to mark paid invoices and track outstanding balances. Realtime updates prevent duplicate payments and missed due dates.
Create payment batches to process multiple invoices efficiently. Batch processing reduces bank fees and provides better cash flow visibility.
4. Strengthen AP fraud protection
Today’s reality is that 76% of organizations experienced attempted or actual fraud in 2025.⁵ In addition, business email compromise affected 74% of organizations in 2025,⁶ often targeting AP departments with fake vendor communications.
Train employees with purchasing authority to recognize indicators of fraud. Verify vendor information before processing payments. Confirm banking details through separate communication channels, especially for new vendors or payment changes.
Choose secure payment methods. Checks remain the highest-risk option, with 58% of organizations reporting check fraud in 2025.⁷ ACH and virtual cards offer better security when used with proper controls.
Check with your bank about additional security measures for your specific situation.
5. Optimize payment timing for working capital
Balance early payment discounts against cash usage costs. Calculate whether 2/10 net 30 terms (a 2% discount if you pay in 10 days, or the full amount due in 30 days) provide real savings after considering your cost of capital.
Negotiate favorable payment terms with key suppliers. 60–90 day agreements can improve your cash flow flexibility.
Pay strategically based on your cash position and upcoming obligations. Using your DPO metric ensures you're staying on good terms with your supplies while still being able to capture opportunities for optimization.
6. Use technology for three-way matching
By automating the comparison of purchase orders, delivery receipts and invoices, you’re more likely to catch billing errors, quantity discrepancies and pricing mistakes before payment.
Integration with your enterprise resource planning (ERP) or accounting system provides complete transaction visibility from purchase through payment.
AI assistance also speeds up exception handling. Modern systems flag unusual invoices for human review while automatically processing routine payments.
7. Conduct regular AP audits
Schedule quarterly or semi-annual reviews of your payment processes. Regular audits help you spot problems before they significantly impact your cash flow.
Work with your bookkeeper to identify control weaknesses and patterns that might indicate fraud, duplicate payments or inefficient processes. Document lessons learned and update your procedures accordingly. Continuous improvement ensures your AP processes evolve with your business needs.
Accounts payable automation trends for 2026
Automation adoption is accelerating. Here's what leading small businesses are implementing in 2026.
Many small businesses adopting touchless processing
"Touchless processing" allows AI to handle routine invoice tasks without human involvement. The best-performing businesses use touchless processing for 49.2% of their payables, but most average 32.6%. Those using it at higher levels see the greatest cost savings and the least processing errors.
AI-driven data extraction
Artificial intelligence now handles invoice data extraction, coding to the correct account, matching purchase orders to invoices and flagging pricing discrepancies for review. These systems reduce manual work by 67–80%, freeing your accounting staff to focus on vendor relationship management rather than data entry.
Cloud-based AP solutions dominate
Cloud solutions, now offered by many banking partners, represent 60–64% of total AP automation solutions and grow 14.32% annually.⁸ Small businesses no longer need expensive on-premise software to access enterprise-level capabilities. Cloud solutions offer flexibility, automatic updates and integration with your existing accounting systems.
Fraud detection gets smarter
AI systems can detect suspicious patterns, verify vendor information against historical records and flag unusual transactions before they reach your bank account. These systems identify fraud indicators that humans might miss, especially as transaction volumes grow.
Your next step
If your current system requires manual invoice entry, multiple approvals or email sorting, you're leaving money on the table. Calculate your current processing cost using the formula in this guide (total monthly processing costs ÷ number of invoices), then compare that to industry benchmarks.
Building vendor relationships through AP excellence
As we’ve stated in this report, consistent, accurate and timely payments build trust with suppliers. This trust translates into better pricing, priority service during shortages and more flexible terms.
Communicate proactively about payment schedules and any potential delays—most vendors appreciate early notification. Your payment reliability can be used as a negotiation tool; suppliers can often accommodate temporary cash flow challenges, provide discounts or even extend payment terms to customers who have a proven payment track record.
Working capital optimization through smart AP management
Your accounts payable strategy directly affects working capital availability. Carefully timing your payments keeps cash ready for growth opportunities while maintaining strong vendor relationships.
Consider seasonal cash flow patterns when negotiating payment terms. Align major payments with your strongest revenue periods when possible.
Monitor industry benchmarks for your sector. Different industries maintain different DPO standards based on their business models and supplier relationships.
Work with your banking partner for AP success
Associated Bank's locally-based bankers know the unique challenges small businesses face with accounts payable management. They can recommend the tools that match your transaction volume and complexity and can guide you through everything from vendor payment systems to fraud prevention strategies.
Regular communication with your banking team ensures you're using the most appropriate services for your business size and growth stage.
Ask your banking partner about specialized AP solutions they offer, including virtual cards, positive pay services and integrated payment platforms. These tools provide better security and cash flow control for business checking accounts.
Take action on your accounts payable process
Start by measuring your current performance using the metrics outlined above. Calculate your DPO, processing costs and on-time payment percentage to establish baseline performance.
Identify your biggest pain points. Whether it's manual data entry, duplicate payments or vendor relationship issues, focus your initial improvements on the areas causing the most problems.
Consider automation solutions that match your business size and transaction volume. Even basic invoice management systems provide significant improvements over manual processes.
Partner with Associated Bank for better AP control
Your accounts payable process affects every aspect of your business operations. From vendor relationships to cash flow management, getting AP right creates a foundation for sustainable growth.
Associated Bank's business banking team helps small business owners with effective accounts payable strategies. Our bankers provide personalized recommendations for payment systems, fraud prevention and cash flow optimization.
Contact your local Associated Bank branch today or schedule an appointment with one of our business bankers to discuss challenges and explore our business banking solutions and accounts payable management tools for your specific needs. Together, we can build an AP process that supports your business goals while protecting your financial interests.
Frequently Asked Questions
What's the difference between accounts payable and accounts receivable?
Accounts payable is money your business owes to suppliers and creditors. Accounts receivable is what customers owe you. Both affect your cash flow, but AP management focuses on preserving cash while maintaining vendor relationships, while AR management focuses on collecting money owed to you.
How do I calculate days payable outstanding (DPO)?
Divide your total accounts payable balance by your daily purchases. Most healthy businesses maintain a DPO between 30 and 60 days, though your ideal range depends on your industry and cash flow strategy. A DPO that's too high might damage vendor relationships, while one that's too low may unnecessarily strain your cash reserves.
What should I do if a vendor's banking information changes?
Always verify banking details through a separate communication channel before processing payment, especially if you receive the request via email. Call the vendor directly using the phone number from your previous invoices or their website. This is a common fraud tactic, and verification takes just a few minutes.
How do I prevent duplicate payments?
Use your accounting system to mark invoices as paid immediately after processing payment and set up a process that requires three-way matching—comparing your purchase order, goods receipt and vendor invoice before payment. Modern AP automation systems automatically flag duplicate invoices before they reach the payment stage.
What's the ideal on-time payment percentage for my business?
Aim for 95% or higher. Paying bills on time builds trust with suppliers, strengthens your negotiating position for better terms and protects your business's reputation. Tracking this metric regularly helps you spot processing bottlenecks that cause late payments.
Is check payment still the best option for accounts payable?
No. Checks carry the highest fraud risk—58% of organizations reported check fraud in 2025. ACH transfers and virtual cards provide better security when paired with proper approval controls. In particular, virtual cards give you time-stamped records and can be limited to single transactions or specific vendors.
Sources
1. https://atidiv.com/accounts-payable-automation-trends/
2. https://www.quadient.com/en/blog/which-accounts-payable-automation-trends-will-matter-most-2026
3. https://kefron.com/2025/02/accounts-payable-automation-trends-key-insights-and-latest-statistics/
4. https://www.verifiedmarketreports.com/product/accounts-payable-automation-market/
5. https://www.financialprofessionals.org/training-resources/resources/survey-research-economic-data/details/paymentsfraud 6. https://www.prnewswire.com/news-releases/over-75-of-us-firms-experienced-payments-fraud-in-2025-while-aiadoption-for-fraud-mitigation-lags-302738857.html
7. https://www.financialprofessionals.org/training-resources/resources/survey-research-economic-data/details/paymentsfraud 8. https://www.mordorintelligence.com/industry-reports/ap-automation-market