Vendors keep your business moving, whether they’re suppliers, service providers, consultants, or contractors. 

However, maintaining those relationships requires more than just timely payments. It requires a clear, organised system for managing payments, communication, and vendor data. 

When your accounts payable process is structured and consistent, vendors get paid on time, finance teams stay in control, and operations run without unnecessary delays.

In this article, we’ll break down how to build a reliable vendor management system within your AP workflow and why getting it right makes all the difference over time.

What is Accounts Payable in Vendor Management?

Accounts payable supports vendor management by ensuring payments are made accurately and on time once goods or services are delivered. It covers recording liabilities, verifying invoices, and keeping communication clear to prevent delays, errors, or compliance issues.

When handled well, AP keeps vendors satisfied, strengthens the supply chain, and gives finance teams the control they need over cash flow. It lays the foundation for efficiency, reliability, and long-term business growth.

Key Objectives in Accounts Payable Vendor Management

Here's what a solid AP vendor management setup should aim to achieve:

• Getting payments right and on time: Nobody likes waiting for money, especially vendors who keep your supply chain alive. Paying them accurately and promptly keeps things running without hiccups, and it's the best way to avoid awkward late fees or damaged relationships.

• Making vendor onboarding painless and thorough: Starting off on the right foot means collecting the right info upfront, including tax IDs, bank details, and the works. That way, you avoid surprises later and keep everything above board.

• Staying sharp on compliance and risk: Following rules might sound boring, but it actually protects you from nasty surprises, fraud, double payments, or unauthorised charges. It's your safety net to keep things clean and secure.

• Speeding up invoice handling without the headaches: The faster invoices get processed, the less stress everyone feels. Cutting down on manual errors means fewer disputes and less chasing down approvals. Everyone's happy, and cash flows better.

• Keeping the conversation open and transparent: Clear communication saves the day if something's off or a question arises. Quick responses mean less back-and-forth and stronger vendor relationships that last.

• Track vendor performance: Setting clear expectations and measuring them helps maintain high service levels. Whether it’s timely delivery or consistent quality, regular reviews help weed out issues before they cost you time or money.

• Spot risks before they cause trouble: Financial instability, non-compliance, supply chain gaps; early warnings are everything. Having visibility into your vendor data gives you a head start on solving problems before they snowball.

Also read: What is Accounts Payable Automation? Key Strategies, Benefits, and Challenges

Now that you know what vendor management involves, let's learn a little more about how the payment process works, from receiving invoices to releasing funds.

How the Vendor Payment Process Works

Paying a vendor might seem simple on the surface, but behind the scenes, a series of steps need to click into place. Each stage ensures accuracy, transparency, and good vendor relationships, from receiving the invoice to clearing the payment and closing the books. Here's how a well-run payment process typically unfolds.

Step 1: Receive the Invoice

The process begins when a vendor submits their invoice. This could arrive via email, a vendor portal, or sometimes even as a hard copy (yep, that still happens!). The first step is logging it into the system.

Step 2: Match the Invoice with the PO and the Delivery

Before anything is approved, the invoice must be matched with the purchase order (PO) and accompanied by a note of proof of delivery or receipt of goods. This 3-way match helps confirm:

• Was it ordered?

• Was it delivered?

• Is the pricing correct?

Step 3: Verify the Invoice Details

Check that the invoice includes all the essentials: vendor name, invoice number, tax info, total amount, payment terms, etc. Any errors or missing information? It goes back to the vendor for correction.

Step 4: Get Approvals

Once everything checks out, the invoice moves to the approval stage. Depending on your workflow, this may involve team leads, department heads, or finance managers providing the approval.

Step 5: Schedule the Payment

After approval, the invoice is queued for payment based on the agreed-upon terms, such as Net 30 or Net 45. It's essential to time this right to avoid early payments that harm cash flow or late fees that irritate vendors.

Step 6: Process the Payment

Payments can be made through various methods, including bank transfer, cheque, and digital wallets. The payment is executed and recorded in your accounting or ERP system.

Step 7: Send Payment Confirmation

Once the vendor is paid, sending them a payment confirmation with details (like reference numbers or remittance info) is best practice. It helps avoid confusion and reassures them that payment is complete.

Step 8: Update Records and Close the Invoice

Finally, the invoice status is marked as "paid" in the system. All related documents are archived for future reference, audits, or reconciliation.

After reading about the process, you might think it is straightforward and a piece of cake for you. However, businesses face several challenges when managing vendors, especially as operations scale.

Common Vendor Management Issues That Slow You Down

Managing vendors isn't just about ticking boxes. It's juggling relationships, processes, and a mountain of details that can easily go sideways if you're not careful. Here are some common headaches teams run into:

1. Keeping vendor data up to date: Vendor info changes more often than expected, such as new contacts, bank details, or tax info. Missing an update can delay payments or cause compliance headaches. Staying on top of this requires constant attention.

2. Handling inconsistent invoice quality: Not every invoice looks the same, and some arrive missing key details or with errors. Sorting through messy or incomplete invoices slows down approvals and causes payment delays.

3. Managing multiple communication channels: Vendors reach out via email, phone, sometimes even WhatsApp or chat apps. Juggling all these conversations without losing track or missing important messages is a real challenge.

4. Avoiding duplicate or fraudulent payments: With dozens or hundreds of vendors and invoices flowing in, spotting duplicates or fraudulent activity isn't easy. Without strong controls, mistakes can slip through and cost the business.

5. Balancing cost control with vendor relationships: Pushing too hard on prices or payment terms can strain relationships, but ignoring costs isn't sustainable either. Finding that sweet spot takes skill and constant balancing.

Also read: Vendor Relations: The Hidden Benefit of Faster Payments

How to Stay on Top of Vendor Payments: Key Strategies

Vendor payments aren’t just about due dates and debit entries. They impact your reputation, cash flow, and ability to keep business moving. These strategies cut through the noise and help finance teams stay sharp, even when the volume picks up.

1. Establish Clear Payment Policies

Draft a payment policy that clearly outlines invoice approval timelines, who signs off at what value threshold, and how exceptions like partial deliveries or pricing disputes are handled. A good policy balances structure with flexibility. Your finance team gets clarity, and vendors know exactly what to expect.

2. Automate the Accounts Payable Process

Start where the bottlenecks live: invoice capture, PO matching, and approvals. Use tools that flag duplicates, track early payment windows, and sync with your accounting system. This is not just about moving faster; it’s about getting things right before mistakes hit your books.

3. Maintain Accurate Vendor Records

Outdated bank details and expired tax information are often the cause of failed or delayed payments. Build a cadence, quarterly or biannually, to audit your vendor database. Better yet, give suppliers access to securely update their own info through a portal or form.

4. Prioritise and Schedule Payments

Not all invoices deserve the same urgency. Use a payment schedule that accounts for due dates, vendor criticality, and cash flow realities. When money is tight, prioritise protecting your key supplier relationships first, even if that means forgoing a discount.

5. Enhance Vendor Communication

When vendors don’t hear from you, they start emailing. Or calling. Or both. Set up automated status updates and consistent communication. A shared portal or even structured templates can help standardise your replies and build trust without burying your team in follow-ups.

6. Implement Robust Internal Controls

Require dual approvals on high-value invoices. Separate the person who enters an invoice from the person who approves payment. Track who did what and when. These controls reduce fraud, prevent costly mistakes, and hold up under audit scrutiny.

7. Reconcile Payables Regularly

Waiting until month-end to reconcile AP is a recipe for missed errors and last-minute panic. Move to weekly or bi-weekly reviews. It helps you catch unmatched entries, duplicates, or missing payments while they’re still easy to fix.

8. Track Vendor Performance Metrics

Payment is just one side of the relationship. Use basic KPIs like billing accuracy, dispute frequency, and delivery timelines to evaluate your vendors. These insights pay off during renegotiations and help spot weak links before they cause bigger problems.

9. Build Flexibility Into Your Payment Strategy

A rigid pay-everyone-on-Net-30 mindset doesn’t serve you. Pay early when discounts make sense. Hold back when cash is tight. Prioritise based on risk, relationship, and cost, not routine.

When you get your vendor management right, the benefits extend far beyond just timely payments. 

Simplify Vendor Payments with Kodo

Kodo simplifies business payments by offering integrated solutions for procure-to-pay processes, corporate cards, accounts payable automation, vendor payouts, and reimbursements. It helps finance teams to automate routine payment tasks, maintain expenditure control, and enhance vendor relationships through timely and transparent transactions.

Key Features of Kodo:

• Multiple Payment Options: Facilitates various payment methods, including UPI QR scan & pay, to accommodate diverse vendor preferences.

• Customisable Approval Workflows: Implements maker-checker-approver flows and limit-based approval transactions to ensure compliance with internal policies.

• Bulk Upload & Payments: Enables bulk uploading of invoices and processing of payments, streamlining the accounts payable process.

• Invoice Management: Offers tools for managing and storing receipts, aiding in accurate record-keeping and audit readiness.

• Real-Time Spend Tracking: Provides real-time insights into company spending, allowing for better budget management and financial planning.

• Vendor Relationship Enhancement: Kodo helps build trust and stronger relationships with vendors by ensuring timely payments and transparent communication.

Conclusion

The real payoff in vendor management isn't just operational, it's strategic. When your AP process supports trust, clarity, and speed, vendors start working with you, not just for you. That alignment unlocks better pricing, smoother negotiations, and partnerships that can scale with your business.

Instead of constantly plugging gaps, the focus shifts to growth, agility, and long-term resilience. And if you're aiming for that kind of shift, you need systems that do more than just "handle" payments.

At Kodo, we're building tools that take manual work off your plate and turn your payment workflows into a strength, where vendors feel valued, data is visible in real-time, and finance teams are always one step ahead.

Book a call with us today to get started!