Accounts Payable and Accounts Receivable. These two concepts are the heartbeat of every business’s cash flow, yet they are the source of chronic confusion on the MB-920 exam. They determine whether a company can pay its staff, buy new stock, or keep the lights on – and Dynamics 365 Finance gives you the tools to manage them both without a calculator.
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A simple way to picture Accounts Payable and Accounts Receivable
22 is the number of invoices a small bakery receives from its suppliers in a single week. This bakery buys flour from a mill, eggs from a farm, and sugar from a wholesaler. Each supplier sends a piece of paper – an invoice – stating exactly what was delivered and how much money the bakery owes. The bakery’s owner keeps a stack of these invoices on her desk. That stack is her accounts payable: the total amount of money the bakery owes to other businesses for goods and services it has already received.
At the same time, the bakery sells bread and cakes to a local café, a school, and a wedding planner. These customers do not pay cash on the spot. Instead, the bakery sends them an invoice of their own, asking for payment within 30 days. The pile of invoices the bakery has sent out to customers is its accounts receivable: the money that is owed to the bakery by its customers. The bakery’s financial health depends on managing both piles. If the bakery pays its suppliers too late, it runs out of flour. If it collects from customers too slowly, it cannot pay its own bills. Dynamics 365 Finance does for a company what a perfect assistant would do for this bakery owner: it tracks every bill owed and every bill due, automates the chasing, and ensures the numbers always balance.
Think of Accounts Payable (often shortened to AP) and Accounts Receivable (AR) as two opposite sides of a single coin. One is money you owe, and the other is money owed to you. In any business that buys from suppliers and sells to customers, these two flows of money are happening every single day.
Accounts Payable (AP) is the department and the process that handles all the money a company owes to its vendors, suppliers, and service providers. When a manufacturer orders raw materials, the supplier sends an invoice. That invoice enters the AP system. The AP team’s job is to verify that the invoice is correct – did we order 100 units? Did the supplier deliver 100 units? Is the price what we agreed? – and then to pay it on time. If they pay too early, the company’s cash runs low. If they pay too late, the supplier might stop shipping. Dynamics 365 Finance automates this verification by matching the invoice to a purchase order (the document created when the order was placed) and a goods receipt note (proof that the items physically arrived). This is called three-way matching, and it prevents paying for things that never arrived. The system can also schedule payments to take advantage of early-payment discounts, such as a 2% discount if paid within ten days.
Accounts Receivable (AR) is the opposite process. It tracks the money that customers owe to the company. When a bakery delivers an order of 50 loaves to a café, the bakery issues a sales invoice. That invoice enters the AR system. The AR function then monitors how long the invoice has been outstanding – accountants call this the ‘aging’ of receivables. If a customer is 30 days late, the system can automatically send a reminder email. If they are 60 days late, it can escalate to a phone call or a formal letter. Dynamics 365 Finance provides a dashboard called the Aged Balances report that shows exactly which customers are overdue and by how much. This allows the credit control team to prioritise chasing those customers with the largest overdue balances.
Why does any of this require a computer system? Before software like Dynamics 365 Finance existed, companies tracked AP and AR in paper ledgers or spreadsheets. A clerk would manually enter each invoice, calculate totals, and write cheques. This was slow, error-prone, and easy to manipulate. A dishonest clerk could create a fake supplier and pay themselves. A system like Dynamics 365 Finance enforces segregation of duties – the person who approves a purchase cannot be the same person who approves the payment. It also creates an audit trail: every change is logged with a timestamp and a user ID. For the MB-920 exam, you must understand that AP and AR are not just lists of bills. They are processes with controls, automation, and reporting.
The core capabilities you need to know for MB-920 include: vendor invoices (the bill from the supplier), purchase orders (the company’s formal request to buy), and free text invoices (a simpler invoice used for non-purchase situations like a one-off fee). On the AR side, you need to know about customer invoices, credit notes (a negative invoice used when a customer returns goods), and collections processes. Dynamics 365 Finance also integrates with Microsoft Power Platform, allowing you to build automated workflows – for example, automatically sending a reminder when an invoice is seven days overdue. The system also supports multiple currencies, which is critical for any business trading internationally. When an invoice is in US dollars but the company’s bank account is in euros, the system calculates the exchange rate and records the gain or loss.
In simple terms, AP ensures you do not pay more than you owe or pay the wrong supplier. AR ensures you get paid what you are owed, and you get it on time. Both are central to the financial health of any organisation, and Dynamics 365 Finance provides the digital backbone to run them reliably at scale.
Receive the Supplier Invoice
The process begins when a vendor sends an invoice, either electronically or by post. In Dynamics 365 Finance, it enters the system as a vendor invoice record. This step matters because the invoice is the source document that triggers the entire AP workflow.
Perform Three-Way Matching
The system automatically compares the vendor invoice against the purchase order (created when the order was placed) and the goods receipt note (created when the items arrived). If all three match, the invoice moves to approval. If they do not, it is flagged as an exception. This prevents paying for items that were not ordered or not received.
Approve the Invoice for Payment
An authorised user reviews the matched invoice and approves it. Approval can be based on a threshold: invoices over £5,000 might need a manager, while smaller ones are auto-approved. This ensures proper financial control.
Schedule and Execute Payment
The system schedules the payment based on the agreed payment terms (e.g., Net 30). It can suggest paying early to capture discounts. Once approved, the system generates the payment (via bank transfer, cheque, etc.) and updates the vendor’s balance.
Create and Send Customer Invoice (AR)
On the AR side, the process starts when a sale is made. A sales invoice is generated, often from a sales order. The invoice is sent to the customer, and the receivable is recorded in the general ledger. This step is critical because it creates the legal claim to the money.
Monitor and Manage Collections
After the invoice is sent, the system tracks how long it remains unpaid. Using the Aged Balances report, the collections team contacts overdue customers systematically. The system logs every interaction and can automate reminder emails. This step ensures the company actually receives the money it is owed.
Meet Priya, the finance manager at a mid-sized furniture manufacturer called WoodCraft Ltd. WoodCraft buys timber, varnish, fabrics, and hardware from 40 different suppliers. It sells finished sofas and tables to 200 retail shops across the UK. Every month, WoodCraft processes around 800 incoming supplier invoices and issues about 1,200 customer invoices. Before using Dynamics 365 Finance, Priya’s team used a spreadsheet. One clerk captured supplier invoices manually, another chased customers by phone, and errors were common. A supplier once sent an invoice for timber that was never delivered, but the invoice was paid anyway because nobody checked it against the delivery note.
Now, with Dynamics 365 Finance, the entire process is transformed. Here is what a typical day looks like for Priya:
At 9 a.m., she opens the Accounts Payable workspace. The system displays 15 new vendor invoices that arrived electronically overnight via the vendor portal. Each invoice is automatically matched against the corresponding purchase order and goods receipt. Three of them have mismatches – the quantity on the invoice does not match the quantity received. The system flags these as exceptions. Priya simply clicks on each one, sees the discrepancy, and contacts the supplier to resolve it.
At 10 a.m., she reviews the Aged Receivables report. A retail chain called HomeStyle is 45 days overdue on an invoice for £12,000. The system has already sent two automated email reminders. Priya clicks a button to generate a formal letter and schedules a phone call to the customer’s accounts department. The system logs every contact.
At 11 a.m., she approves a batch of payments. The system suggests paying five suppliers who offer a 2% early-payment discount if paid within ten days. Priya approves the batch, and the system automatically sends the electronic payments via BACS. The discounts save WoodCraft £850 that month.
After lunch, Priya uses the Collections feature. She sees a list of 20 customers with overdue balances, sorted by amount owed and days overdue. She can assign each customer to a different team member, set follow-up dates, and view a history of all previous collection activities. The system calculates the probability of payment based on the customer’s payment history.
The IT professional who set up this system, named Raj, did not write a single line of code. He used the configuration tools inside Dynamics 365 Finance to define the payment terms, the matching rules, the email templates, and the user permissions. He also created a Power Automate flow that sends a notification to the sales team whenever a customer exceeds their credit limit. For the exam, you do not need to know how to configure these things, but you must recognise that AP and AR in Dynamics 365 are highly configurable, not custom-code solutions. Raj’s biggest challenge was training the staff to trust the system instead of their old spreadsheet habits. Once they saw that the vendor invoice matching caught a duplicate payment from last year, the team was convinced.
The MB-920 exam tests your understanding of AP and AR at a conceptual and capability level. You will not be asked to configure the system or write financial reports, but you will need to know what the system can do and why it matters. Here is exactly what Microsoft expects you to know.
First, you must be able to distinguish between AP and AR. Traps abound: a question might list four tasks and ask, ‘Which of the following is an Accounts Payable activity?’ The answer is something like ‘Processing a vendor invoice,’ while a distractor will be ‘Generating a customer invoice’ (which is AR). Another trap is around free text invoices. A free text invoice is used when you need to bill a customer for something that is not tied to a purchase order – for example, a monthly rental fee or a service charge. The exam loves to test this because beginners often think all invoices come from purchase orders.
Second, you must know the three main types of vendor documents: purchase orders, vendor invoices, and goods receipt notes. The concept of three-way matching is the biggest testable idea. If the exam asks, ‘What does three-way matching verify?’ the correct answer is that it matches the purchase order, the vendor invoice, and the goods receipt note to ensure the business only pays for what it ordered and received.
Key exam topics to memorise:
The purpose of a purchase order (PO): an internal document created by the buyer to authorise a purchase.
The purpose of the vendor invoice: the external bill from the supplier.
The purpose of the goods receipt note: proof that the items were physically received.
The definition of a free text invoice: a simplified invoice for non-PO purchases.
The definition of a credit note: a document that reduces the amount a customer owes, often due to a return or refund.
The collections process: automated reminders, aging reports, and escalation steps.
Payment terms: the agreed period (e.g., Net 30) and any early-payment discounts.
Common traps:
They will ask about ‘vendor invoice’ but then describe a task that is really about ‘customer invoice’. Read the question carefully – if it mentions a customer, it is AR. If it mentions a supplier or vendor, it is AP.
They will present a scenario where a company needs to send a bill quickly without a purchase order. The correct response is to use a free text invoice, not a standard sales order.
They will test your understanding of aged balances. An aged balance report shows how long invoices have been outstanding, grouped into time buckets (0-30 days, 31-60 days, etc.). This helps prioritise collection efforts.
For the exam, remember that AP and AR are not just data entry – they are processes with controls, automation, and integration. A question might ask, ‘Which feature helps prevent paying a vendor invoice twice?’ The answer is three-way matching or the duplicate invoice check, which is a built-in validation that flags invoices with the same vendor and invoice number. The exam expects you to know these features exist, even if you have never opened the software.
Accounts Payable (AP) manages money a company owes to suppliers; Accounts Receivable (AR) manages money customers owe to the company.
Three-way matching in AP verifies that the purchase order, the vendor invoice, and the goods receipt note all agree before payment is approved.
A free text invoice is an AR document used to bill customers for items not linked to a purchase order, such as one-time fees or interest charges.
The Aged Balances report in AR groups overdue invoices by time buckets (e.g., 30, 60, 90 days) to help prioritise collection efforts.
Dynamics 365 Finance can automate payment scheduling to capture early-payment discounts from suppliers, directly improving cash flow.
Credit notes reduce the amount owed in both AP and AR and are typically issued for returns, refunds, or billing corrections.
Segregation of duties in AP ensures the person who approves a purchase cannot also approve the payment, preventing fraud.
The system provides an audit trail for every AP and AR transaction, recording who changed what and when.
These come up on the exam all the time. Here's how to tell them apart.
Accounts Payable (AP)
Manages money the company owes to suppliers or vendors.
Starts with a vendor invoice from the supplier.
Ends with an outgoing payment (cash outflow).
Accounts Receivable (AR)
Manages money that customers owe to the company.
Starts with a sales invoice sent to the customer.
Ends with an incoming payment (cash inflow).
Purchase Order (PO)
Created by the buyer before the purchase to authorise the order.
Is an internal document, not a bill.
Contains order quantities and agreed prices.
Vendor Invoice
Created by the supplier after delivery to request payment.
Is an external document, a bill for goods/services.
Contains the actual amounts being charged.
Three-Way Matching
Matches the purchase order, vendor invoice, and goods receipt note.
Verifies that items were both ordered and physically received.
Provides the highest level of control against incorrect payments.
Two-Way Matching
Matches only the purchase order and the vendor invoice.
Does not require confirmation of physical receipt of goods.
Used for services or situations where goods receipt is not tracked.
Standard Invoice (Sales)
Linked to a specific sales order and purchase order.
Contains line items from the order with quantities and prices.
Used for typical product or service sales where a PO exists.
Free Text Invoice
Not linked to any sales order or purchase order.
Contains free-form lines with descriptions and amounts.
Used for one-off charges like fees, rent, or interest.
Mistake
Accounts Payable and Accounts Receivable are the same thing, just for different people.
Correct
They are completely opposite processes: AP is money the company owes to others, and AR is money others owe to the company. They use different documents, different workflows, and different reports.
The words 'payable' and 'receivable' sound similar to beginners, and both involve invoices, so it is easy to lump them together.
Mistake
A purchase order and a vendor invoice are the same document.
Correct
A purchase order is created by the buyer before the purchase to authorise it. A vendor invoice is created by the supplier after the delivery to request payment. They serve entirely different purposes.
Both are pieces of paper about a transaction, so beginners assume they are interchangeable.
Mistake
A free text invoice is just a different name for a vendor invoice.
Correct
A free text invoice is used to bill customers (AR) for non-purchase-order charges, like rental fees or interest. A vendor invoice is used to record a bill from a supplier (AP).
The words 'free text' sound informal, so learners think it applies to any simple invoice rather than understanding it is specifically for customer billing without a PO.
Mistake
Credit notes are only used in Accounts Payable.
Correct
Credit notes are used in both AP (when a supplier gives a refund or allowance) and AR (when a business gives a refund or allowance to a customer). They reduce the amount owed.
Most examples in training focus on customer returns, so learners forget suppliers can issue credit notes too.
Mistake
Collections is the same as the sales process.
Correct
Collections is the part of AR that focuses on chasing overdue payments. The sales process ends when the order is placed. Collections begins when the payment is late.
Both involve customer contact, so beginners think collection calls are just an extension of selling.
Reveal each answer, then mark whether you got it right. Score 60%+ to unlock the next chapter.
No. A purchase order is an internal document you create to authorise a purchase before you buy anything. An invoice is the bill sent by the supplier after the goods or services are delivered.
Three-way matching is an automatic check in Accounts Payable that compares the purchase order, the vendor invoice, and the goods receipt note. It matters because it prevents you from paying for something you never ordered or never received, reducing errors and fraud.
A free text invoice is an Accounts Receivable document used to bill a customer for a charge that is not linked to a purchase order. You would use it for things like a monthly rental fee, a service charge, or interest on a late payment.
A vendor is a company or person you buy from – they send you invoices. A customer is a company or person you sell to – you send them invoices. In Dynamics 365, vendors are linked to Accounts Payable and customers to Accounts Receivable.
No. AP and AR are configured using built-in settings and features within the application, not by writing custom code. You define payment terms, matching rules, email templates, and user roles through the system’s configuration interface.
It is a report that shows how long customer invoices have been unpaid, grouped into time periods like 0-30 days, 31-60 days, and 61-90 days. It helps you prioritise which customers to contact about overdue payments.
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