How to write an AP policy

Why it matters

Without a written policy every approver uses their own rules. One person pays on a text message. Another needs a purchase order. Auditors and new staff cannot tell which is right.

A policy also protects the person who says no. When the rule is on paper, a late payment request from a director has to follow the same steps as everyone else.

The steps

1. Set the scope. Say what the policy covers: supplier invoices, credit notes, contractor claims and card spend. Name the people who run it, such as the AP officer and the finance manager.
2. Set approval limits. List who approves what by dollar amount. Add a second approver above a set limit. Keep the table on one page.
3. Say what a valid invoice looks like. Require a tax invoice with a valid ABN, a purchase order number where one is needed and a due date. Anything else goes back to the supplier.
4. Set the order of work. Receive, check, code, approve, pay. Say who does each step. The person who enters a bill should not be the only person who approves it.
5. Set payment timing. State the standard terms (for example 30 days) and the day of the week you run payments. Say how an urgent payment is requested and who can approve it.
6. Control supplier changes. Any change to bank details must be confirmed by phone on a number already on file. Record who confirmed and when.
7. Handle exceptions. Say what happens with a duplicate invoice, a disputed invoice, a missing purchase order and a credit note. Name the person who decides.
8. Keep records. Keep invoices, approvals and payment proof. The ATO says to keep most business records for 5 years from when you prepare them or complete the transaction. Say where they are stored.
9. Review it once a year. Put a review date on the policy. Update the limits when the business grows or a person leaves.

The Pulsify way

1. Admins set approval steps that route by amount, supplier, GL account or tracking category, so the limits in your policy run on every bill.
2. Use Try an invoice to see which path a sample invoice would take, without saving anything.
3. Every approval action is recorded in the bill's activity, which gives you the audit trail the policy asks for.

Worked example

Example Distribution Pty Ltd sets these approval limits. All amounts include GST.

Invoice total	Approver	Second approver
Up to A$1,000	Team lead	None
A$1,000.01 to A$10,000	Finance manager	None
A$10,000.01 to A$50,000	Finance manager	Director
Over A$50,000	Director	Second director

A bill for A$7,400 goes to the finance manager only. A bill for A$18,250 needs the finance manager and a director. Nobody can approve a bill they entered.

Common mistakes

• Writing a policy so long that nobody reads it.
• Setting limits but not saying who covers when the approver is away.
• Leaving out bank detail changes, which is a common way payment fraud starts.
• Never reviewing the limits after the business grows.

Next step

Use the SOP template generator first. Then see the approval workflows guide.

Sources

• ATO: overview of record-keeping rules