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 manage accounts payable effectively
• 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 for goods or services bought on credit. 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.
• A clear accounts payable process helps you avoid late fees, keep suppliers happy, and stay on top of your cash flow.
• Automating invoice capture, matching, and payments helps cut manual admin and keep your payments on time.

What is accounts payable?

Accounts payable is the money your business owes to suppliers for goods or services you've bought on credit but haven't paid for yet. It's the total of your outstanding bills at any point in time.

Think of accounts payable as the unpaid invoices waiting on your desk. Everyday examples include:

• buying stock, raw materials, or equipment on credit
• paying for electricity, phone, internet, or water
• 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 for the goods or services. That amount joins your accounts payable until you pay it, and in the supplier's books the same invoice becomes accounts receivable.

Accounts payable can also mean the business function or team that manages these payments. In larger companies, the accounts payable team handles:

• reviewing and approving supplier bills
• scheduling payments so bills are paid on time
• answering questions about payment status
• keeping accurate payment records

In a small business, you might look after accounts payable yourself or hand it to a bookkeeper. Either way, a tidy process helps you avoid late fees, keep good supplier relationships, and maintain accurate records.

Accounts payable vs accounts receivable

Accounts payable and accounts receivable are two sides of the same coin. One tracks money leaving your business, the other tracks money coming in.

Accounts payable covers what you owe:

• money your business owes to suppliers
• recorded as a liability on your balance sheet
• examples include unpaid supplier invoices, utility bills, and rent

Accounts receivable covers what others owe you:

• money customers owe your business
• recorded as an asset on your balance sheet
• examples include customer invoices you've sent but haven't been paid for

When you buy office supplies on credit, that unpaid invoice is your accounts payable. When you sell to a customer and invoice them, that becomes your accounts receivable until they pay. For a fuller comparison, read the guide to accounts receivable.

Is accounts payable an asset or liability?

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

Here's why accounts payable counts as a liability:

• it's a financial obligation you have a legal duty to pay
• it represents cash that will leave your business
• it's time-sensitive, with most bills due within 30 to 90 days
• it sits under current liabilities, not assets

Current liabilities are debts you expect to settle within one year. Accounts payable usually falls here, since most supplier terms ask for payment within 30 to 60 days. Knowing this classification helps you manage cash flow and keep accurate records for tax and planning.

The accounts payable process

The accounts payable process is the set of steps you follow from receiving a supplier's invoice to paying it and recording the payment. A consistent process keeps payments accurate and on time.

1. Receive the invoice from your supplier, whether by email, post, or an automated bank feed.
2. Verify and match the invoice against the purchase order and the delivery, so you're paying for what you actually ordered and received.
3. Record the payable in your accounts, adding it to what you owe.
4. Schedule the payment in line with the supplier's payment terms.
5. Pay the supplier and reconcile the payment against the invoice.

Following these steps in order reduces errors and duplicate payments. For a deeper walkthrough, see the accounts payable process guide.

How to manage accounts payable effectively

Managing accounts payable well keeps your business running smoothly and your cash flow predictable. A few simple habits make the biggest difference.

• Pay on time to avoid late fees and protect supplier relationships
• Take early payment discounts where suppliers offer them
• Track what you owe and when it's due for clear cash flow visibility
• Automate invoice capture and matching to cut manual admin

Xero helps you put these habits into practice. You can track invoices, schedule payments, and keep clear records of what you owe, all in one place.

With automated bank feeds and invoice matching, Xero handles more of the repetitive work, to help you spend less time on admin. See how to pay bills with Xero and stay on top of your suppliers.

Simplify accounts payable with Xero

Staying on top of accounts payable protects your cash flow and your supplier relationships. Xero brings your bills, payments, and records together to help you stay on top of what's due. Start today to see how much time you could save and get one month free.

FAQs on accounts payable

Here are answers to frequently asked questions about accounts payable.

What is the difference between accounts payable and accounts receivable?

Accounts payable is money you owe to suppliers. Accounts receivable is money your customers owe to you.

Is accounts payable an asset or liability?

Accounts payable is a current liability on your balance sheet. It represents money you owe to others.

Is accounts payable a debit or credit?

Accounts payable is recorded as a credit when the liability is created. It's then debited when you pay the bill.

What is the difference between accounts payable and accrued expenses?

Accounts payable covers bills you've received an invoice for from a supplier. Accrued expenses are costs you've incurred but haven't yet been invoiced for.

How can small businesses automate accounts payable?

You can automate accounts payable with software that captures invoices, matches them, and schedules payments for you. This cuts manual admin and helps keep payments on time.

Related Terms

• Accounts receivable
• Invoice
• Current liabilities
• Balance sheet
• Cash flow

Learn more about accounts payable

• Accounts payable process guide
• Accounts receivable guide
• What is an invoice
• Pay bills with Xero