Accounts payable

Published Friday 24 July 2026

Table of contents

• What is accounts payable?
• Accounts payable vs accounts receivable
• Is accounts payable an asset or liability?
• The accounts payable process
• How to measure accounts payable
• Simplify accounts payable with Xero
• FAQs on accounts payable
• Related terms
• Learn more about accounts payable

Key takeaways

• Accounts payable is the money your business owes suppliers and vendors for goods or services bought on credit, and it sits as a current liability on your balance sheet.
• Accounts payable is what you owe others, while accounts receivable is what others owe you, so the two sit on opposite sides of your books.
• A clear accounts payable process helps you avoid late fees, keep good supplier relationships, and see your cash flow more clearly.
• Measures like the accounts payable turnover ratio and days payable outstanding show how quickly you settle what you owe.

What is accounts payable?

Accounts payable is the money your business owes to suppliers and vendors for goods or services you've bought on credit but haven't paid for yet. It's a current liability on your balance sheet, made up of your outstanding bills.

Think of accounts payable as unpaid invoices sitting on your desk. Common examples include:

• buying raw materials, inventory, or equipment on credit
• paying for electricity, phone, internet, or water services
• using legal, consulting, or maintenance services
• renting office space or equipment

Here's how it works. When you buy materials from a supplier on credit, they send you an invoice, and that amount becomes part of your accounts payable until you pay it. In your supplier's records, the same invoice shows up as accounts receivable, the money they expect to collect from you.

Accounts payable can also mean the team or function that manages these payments. In larger businesses, the accounts payable department reviews and approves supplier bills, schedules payments, answers questions about payment status, and keeps accurate payment histories. In a small business, you might handle this yourself or pass it to a bookkeeper.

Accounts payable vs accounts receivable

Accounts payable and accounts receivable sit on opposite sides of your business transactions. Accounts payable is what you owe, while accounts receivable is what others owe you.

Accounts payable covers money your business owes to others, so it appears as a liability on your balance sheet. Examples include:

• unpaid supplier invoices
• outstanding utility bills
• rent you've been billed for but not yet paid

Accounts receivable covers money others owe your business, so it appears as an asset on your balance sheet. Examples include:

• customer invoices you've sent but haven't been paid for
• amounts due from clients on agreed credit terms

Both affect how you manage cash flow. Accounts payable is money going out, and accounts receivable is money coming in. When you buy office supplies on credit, that unpaid invoice is your accounts payable. When you sell to a customer and send them an invoice, that becomes your accounts receivable until they pay.

Is accounts payable an asset or liability?

Accounts payable is a liability because it's money your business owes to others. More specifically, it's a current liability on your balance sheet.

Here's why accounts payable counts as a current liability:

• you have a legal obligation to pay these amounts
• it represents cash that will leave your business
• it's time-sensitive, with supplier terms typically running 30 to 90 days
• it appears under current liabilities, not assets

Current liabilities are debts you expect to settle within one year, and accounts payable usually fits here. Tracking it accurately helps you keep accurate financial records for tax reporting and business planning.

The accounts payable process

The accounts payable process is the set of steps you follow from receiving a bill to paying it. Following the same steps each time keeps payments accurate and on time.

1. Receive the invoice from your supplier.
2. Verify and approve it against what you ordered and received.
3. Record it in your accounts as a payable.
4. Schedule the payment before the due date.
5. Pay the supplier using your chosen method.
6. Reconcile the payment against your bank records.

How to measure accounts payable

Two simple measures show how well you manage what you owe. Both look at how quickly you pay suppliers over a period.

• Accounts payable turnover ratio: how many times you pay off your average payables in a period. A higher figure suggests you pay suppliers quickly, while a lower figure suggests you take longer
• Days payable outstanding (DPO): the average number of days you take to pay suppliers. A higher figure means you hold onto cash longer, while a lower figure means you settle bills sooner

Reading these together helps you balance strong supplier relationships with steady cash flow. If you're new to tracking figures like these, a grounding in small business accounting makes them easier to use.

Simplify accounts payable with Xero

A clear accounts payable process keeps your business running smoothly, with bills paid on time and cash flow you can predict. It helps you avoid late fees, maintain good supplier relationships, and see what you owe and when payments are due.

Xero brings your bills together in one place so you can track invoices, schedule payments, and keep clear records of what you owe. Automated bank feeds and invoice matching help cut the manual work involved, so you can spend more time growing your business. Set up your books to manage accounts payable with less admin and get one month free.

FAQs on accounts payable

Here are answers to some frequently asked questions about accounts payable.

Is accounts payable a debit or credit?

Accounts payable normally carries a credit balance, since it increases when you record a bill you owe. You debit it when you pay the bill, which reduces the balance.

What is the difference between accounts payable and trade payables?

Trade payables are amounts owed specifically for goods and services you buy to run your business. Accounts payable is broader and can include non-trade amounts such as tax or utility bills.

Are wages and salaries part of accounts payable?

No, wages and salaries owed to staff are recorded separately as payroll liabilities, not accounts payable. Accounts payable covers amounts owed to suppliers and vendors.

What is a good accounts payable turnover ratio?

There's no single ideal figure, as it varies by industry and supplier terms. Aim for a ratio that lets you pay on time without settling so fast that you strain your cash flow.

Related terms

• Accounts receivable
• Invoice
• Current liabilities
• Cash flow

Learn more about accounts payable

• Accounts payable process guide
• Small business bookkeeping
• Invoicing explained
• Cash vs accrual accounting