In accounts payable, how does the vendor payment mechanism generally work?

Introduction / Context:
The accounts payable function is responsible for ensuring that payments to vendors are accurate, timely and properly authorised. A sound payment mechanism protects the organization against fraud, duplicate payments and errors. This question focuses on the standard control flow for paying suppliers and is closely related to concepts such as three way matching and segregation of duties in financial processes.

Given Data / Assumptions:
- We are considering the vendor payment mechanism in accounts payable. - Options describe different ways suppliers might be paid: immediately on order, after verification and approval, never paid, or based only on verbal commitments. - We assume a formal organisational setting with standard internal controls. - We must choose the description that reflects best practice in accounts payable.

Concept / Approach:
A robust payment mechanism typically involves multiple stages. First, a purchase order is raised and approved to authorise the purchase. Second, when goods or services are received, a goods receipt or service confirmation is prepared. Third, the supplier sends an invoice. Accounts payable staff then perform checks: the details on the invoice are matched with the purchase order and the goods receipt, quantities and prices are verified and any discrepancies are resolved. Only after this verification and the necessary approvals is the invoice scheduled for payment according to agreed terms. This control flow reduces the risk of paying for goods not received, incorrect quantities or unauthorised purchases. Paying immediately on order, refusing to pay or paying based on verbal agreements would violate basic internal control principles.

Step-by-Step Solution:
Step 1: Recall the main documents in accounts payable: purchase order, goods receipt and supplier invoice. Step 2: Understand that payment should be based on clear evidence that the goods were ordered, received and billed correctly. Step 3: Compare the options and look for the one that explicitly mentions verification of documents and approvals before payment. Step 4: Select the option describing payment after verifying purchase orders, goods received and invoices, since this matches the standard controlled payment mechanism used in professional accounting systems.

Verification / Alternative Check:
You can verify the correct answer by thinking about how enterprise resource planning systems such as SAP or Oracle handle vendor payments. These systems are designed around workflows where invoices cannot be paid unless they match purchase orders and receipts and pass predefined approval levels. Internal and external auditors also expect such controls to be in place. This confirms that the correct payment mechanism involves verification and approval, not automatic or verbal-based payments.

Why Other Options Are Wrong:
Immediate payment when goods are ordered: Paying before goods are received exposes the organisation to the risk of non delivery or incorrect supply, and is not standard practice except in special cases like advances with strong contracts. Suppliers are never paid: This is unrealistic and would destroy business relationships; it does not describe any genuine payment mechanism. Payment based solely on verbal commitments: Relying only on verbal agreements without documents fails basic internal control requirements and increases the risk of errors and fraud.

Common Pitfalls:
A common mistake is to underestimate the importance of documentation and assume that as long as a manager verbally approves a purchase, payment can proceed. In modern organisations, auditors, regulators and management require documented evidence. Another pitfall is confusing advances or prepayments, which may be used for specific contracts, with the typical process for routine purchases. For exams, always associate a sound payment mechanism with documented verification and proper approvals.

Final Answer:
The correct option is Suppliers are paid only after verifying purchase orders, goods received and supplier invoices, and obtaining approvals, because this reflects the standard controlled accounts payable payment mechanism that safeguards organisational funds.