What is accounts payable? Definition, FAQs, and resources

Published Friday 12 September 2025

Table of contents

• What is accounts payable?
• Accounts payable vs accounts receivable
• Is accounts payable an asset or liability?
• Managing accounts payable with Xero
• FAQs on accounts payable
• Resources
• Advisor directory
• Xero small business guides
• Billing with Xero

Key takeaways

• Accounts payable represents money your business owes to suppliers and vendors for goods or services purchased on credit, appearing as a current liability on your balance sheet.
• Distinguish accounts payable from accounts receivable by remembering that accounts payable is what you owe others, while accounts receivable is what others owe you.
• Implement effective accounts payable management to avoid late fees, maintain strong vendor relationships, and improve cash flow visibility through timely payment scheduling.
• Utilize automated accounts payable systems to streamline invoice processing, reduce manual work, and ensure consistent on-time payments to suppliers.

What is accounts payable?

Accounts payable is the money your business owes to suppliers and vendors for goods or services you've purchased on credit but haven't yet paid for. It represents your outstanding bills and financial obligations.

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. That invoice amount becomes part of your accounts payable until you pay it. Meanwhile, in your supplier's records, that same invoice appears as accounts receivable – money they expect to collect from you.

Accounts payable can also refer to the business function or team responsible for managing these payments. In larger companies, the accounts payable department handles:

• review and approve supplier bills
• schedule payments to ensure bills are paid on time
• answer questions about payment status
• maintain accurate payment histories

For small businesses, you might handle accounts payable yourself or delegate it to a bookkeeper. Regardless of who manages it, effective accounts payable processes help you avoid late fees, maintain good vendor relationships, and keep accurate financial records.

Learn more about invoices

See more accounting terms

Accounts payable vs. accounts receivable

Accounts payable and accounts receivable represent opposite sides of business transactions. The main difference is:

Accounts payable (what you owe):

• Money your business owes to others
• Appears as a liability on your balance sheet
• Examples: unpaid supplier invoices, utility bills, rent

Accounts receivable (what others owe you):

• Money others owe your business
• Appears as an asset on your balance sheet
• Examples: 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 products to a customer and send them an invoice, that becomes your accounts receivable until they pay.

Both affect your cash flow management – accounts payable represents money going out, while accounts receivable represents money coming in.

Is accounts payable an asset or liability?

Accounts payable is a liability because it represents money your business owes to others. Specifically, it's classified as a current liability on your balance sheet.

Here's why accounts payable is considered a liability:

• financial obligation: you have a legal duty to pay these amounts
• money outflow: accounts payable represents cash that will leave your business
• time-sensitive: most accounts payable must be paid within 30 – 90 days
• balance sheet placement: appears under current liabilities, not assets

Current liabilities are debts you expect to pay within one year. Accounts payable typically falls into this category since most supplier terms require payment within 30 – 60 days.

Understanding this classification helps you manage cash flow and maintain accurate financial records for tax reporting and business planning.

Managing accounts payable with Xero

Effective accounts payable management keeps your business running smoothly by ensuring bills are paid on time and cash flow stays predictable. Poor AP management can lead to late fees, damaged vendor relationships, and cash flow problems.

Key benefits of streamlined accounts payable management:

• avoid late fees by using automated reminders to pay bills on time
• maintain vendor relationships by making consistent payments
• improve cash flow visibility by tracking what you owe and when payments are due
• reduce manual work by automating invoice processing and payment scheduling
• support business planning with accurate accounts payable records

Xero's accounts payable features help small businesses manage their bills efficiently. You can track invoices, schedule payments, and maintain clear records of what you owe – all from one platform.

With automated bank feeds and invoice matching, Xero reduces the manual work involved in accounts payable management, giving you more time to focus on growing your business.

Try Xero for free to see how streamlined accounts payable management can benefit your business.

FAQs on accounts payable

Find answers to common questions about accounts payable below.

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, as it represents money you owe to others.

What is the accounts payable process?

The accounts payable process includes receiving invoices from suppliers, approving them, and making payments. This system helps you manage and pay your short-term debts.

Accounts payable resources

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