Sample Standard Operating Procedure (SOP) for Finance: Accounts Payable

This document outlines the standard operating procedure (SOP) for Accounts Payable (AP), ensuring consistent and accurate processing of vendor invoices and payments within the Finance department.

1. Purpose

The purpose of this SOP is to establish a clear, documented process for managing accounts payable from invoice receipt to payment disbursement. This promotes internal controls, minimizes errors, and ensures timely payments to vendors.

2. Scope

This SOP applies to all employees responsible for processing vendor invoices, verifying purchase orders, approving payments, and maintaining AP records within the Finance department. It covers all types of vendor invoices, including those for goods, services, and other business expenses.

3. Responsibilities

• AP Clerk: Receives, verifies, and enters vendor invoices into the accounting system. Matches invoices with purchase orders (POs) and receiving reports. Follows up on discrepancies.
• Department Manager: Approves invoices for payment, verifying that goods or services were received as ordered and that the invoice is accurate.
• Finance Manager: Reviews and approves batch payments. Ensures adherence to payment terms and budget constraints.
• Treasurer/CFO: Authorizes large payments exceeding a predetermined threshold.

4. Procedure

1. Invoice Receipt: All vendor invoices are received by the AP Clerk, either electronically or physically. Date stamp the invoice upon receipt.
2. Invoice Verification and Data Entry: The AP Clerk verifies the invoice details (vendor name, invoice number, date, amount, and PO number) against the corresponding PO and receiving report (if applicable). Enter the invoice information into the accounting system, ensuring accurate coding to the appropriate general ledger accounts.
3. Purchase Order Matching: Match the invoice with the corresponding PO and receiving report to ensure that the goods or services were ordered and received. Investigate any discrepancies (price differences, quantity discrepancies) and resolve them with the vendor and the requesting department. Document all communication and resolutions.
4. Invoice Approval: Route the invoice to the appropriate Department Manager for approval. The Department Manager reviews the invoice, PO, and receiving report to confirm that the goods or services were received satisfactorily and that the invoice is accurate. The Department Manager approves the invoice electronically or physically, indicating approval and date.
5. Payment Processing: The AP Clerk prepares a payment run based on due dates and available funds. The Finance Manager reviews the payment run to ensure accuracy and adherence to payment terms. Large payments (exceeding a pre-defined threshold) require approval from the Treasurer/CFO.
6. Payment Disbursement: Payments are disbursed via check, electronic funds transfer (EFT), or other approved methods. Maintain records of all payments made, including payment date, amount, and method.
7. Record Keeping: Maintain organized and complete records of all invoices, POs, receiving reports, and payment records. These records should be stored electronically in a secure and accessible location.

5. Internal Controls

• Segregation of duties: Different individuals should be responsible for invoice processing, approval, and payment disbursement.
• Purchase orders are required for all purchases above a certain threshold.
• All invoices must be approved by the appropriate Department Manager before payment.
• Regular review of AP aging reports to identify overdue invoices and potential issues.
• Periodic audits of the AP process to ensure compliance with this SOP and relevant regulations.

6. Revision History

This SOP will be reviewed and updated annually or as needed to reflect changes in business processes or regulations.