How should a startup run accounts payable?

01The six steps every bill goes through#

The steps are the same whether the bill is $90 or $90,000. What changes with size is how many people touch each step and how much evidence each leaves behind. Write them down even if one person does most of them today, because the first hire who takes over will otherwise invent their own.

• Intake: the invoice arrives in one place (a dedicated AP inbox, not someone’s personal email) and is captured with its PDF attached.
• Coding: each line is assigned an expense account, and a department or class if you track them.
• Approval: the person who owns the spend confirms the work was done and the price is right.
• Scheduling: the payment date is set from the terms, not from when someone remembers.
• Payment: the money leaves on that date, by ACH, check, card or wire.
• Recording: the payment is matched to the bill in the ledger, so the liability goes to zero.

02Intake and coding#

Give vendors one address for invoices and use it everywhere: on purchase orders, in contracts, in your vendor onboarding form. Bill-pay tools read the PDF and pre-fill the vendor, invoice number, dates and amount. Check each field anyway; a misread due date is how a Net 30 bill gets paid on day 3.

Duplicate detection belongs here, before anything is approved. The key is the vendor plus the vendor’s own invoice number, with a second check for the same vendor and amount within a few days of each other. Duplicate payment is one of the most common and most preventable AP losses, and it usually happens because the same invoice arrived twice: once by email, once from a reminder.

Code by line, not by bill. A single invoice from an agency can carry design work, a software pass-through and travel, and each belongs in a different account. If the vendor’s history suggests a default, use it as a suggestion and confirm it.

03A worked example: one bill, two entries#

Northlight Studio sends invoice INV-0418 dated October 1: $4,500 of brand design for September and $1,500 of design-tool seats it bought on your behalf, Net 30, $6,000 in total. When the bill is approved it is recorded on accrual books as two debits and one credit. Debit side: professional fees $4,500 and software $1,500. Credit side: accounts payable $6,000. The expense lands in the period the bill covers, and the balance sheet now shows that you owe $6,000.

On October 30 the payment goes out by ACH. Debit side: accounts payable $6,000. Credit side: cash $6,000. The payment does not touch an expense account at all; it only settles the liability. If the same $6,000 were also categorized as an expense from the bank feed, the books would carry the work twice. Matching the bank transaction to the open bill, rather than categorizing it, is what prevents that.

04Who approves what#

Approval answers two questions: was this ordered and received, and is the price what we agreed? The person best placed to answer is whoever owns the spend, which is usually not the person entering the bill. For recurring bills that match a contract (rent, a fixed retainer, a software subscription at its contracted price), the approval can be standing, reviewed when the amount changes.

Add a second approver above a threshold you choose. There is no statutory number for a private company; pick one that matches the size of your typical bill and the founders’ appetite for review, and set it in the bill-pay tool so it is enforced rather than remembered. A bill edited after it was approved should need approval again.

05Segregation of duties at a 10-person company#

Segregation of duties means no one person can both create a payment obligation and send the money. Large companies split this across departments. A small company cannot, but it can split it across two or three people, and an outside bookkeeper counts as one of them.

The point is not that anyone is dishonest. It is that mistakes and fraud both pass through the step nobody else looks at, and the most expensive AP fraud (an attacker posing as a real vendor and asking you to update their bank account) works only where one person can change the details and pay in the same afternoon.

• Whoever adds or edits a vendor, including its bank details, does not also release payments to that vendor.
• Whoever enters a bill does not approve it.
• Payments over your threshold need two people at the bank or in the bill-pay tool.
• Bank-detail changes are confirmed by calling a number you already had on file, never one from the email asking for the change.
• Someone who does none of the above reviews the AP aging and the payment register each month.

06Scheduling payments and reading the AP aging#

Pay on the due date, not when the bill arrives. Paying early gives up cash for nothing unless the vendor offers a discount. A weekly or twice-monthly payment run, where every approved bill due before the next run is paid together, is easier to review and to plan cash around than paying bills one by one. ACH takes a business day or two to settle, so schedule it to arrive on time rather than leave on time.

The AP aging report lists every unpaid bill by how far past due it is: current, 1–30 days, 31–60, 61–90 and over 90. Its total must equal the accounts payable balance on the balance sheet at the same date. If it doesn’t, something was posted to AP without a bill behind it, usually a journal entry, and that has to be found before the month closes. Anything in the later columns is either a dispute to resolve or a bill that was paid some other way and never closed.

07When to add purchase orders and three-way match#

A purchase order records a commitment before the bill exists: what was ordered, from whom, at what price. Three-way match compares the order, the receipt of the goods and the vendor’s invoice before a bill can be paid. Neither touches the ledger on its own; the books move when the goods are received or the bill arrives.

Most early-stage software companies don’t need either. They become worth the overhead when you buy physical goods, when several people spend against budgets, or when an investor or lender starts asking how spend is controlled. Until then a two-way check (does the invoice match the contract?) done by the budget owner at approval covers the same ground.