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
• Managing accounts payable with Xero
• 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 to suppliers and vendors for goods or services bought on credit, and it appears as a current liability on your balance sheet.
• Accounts payable is what you owe others, while accounts receivable is what others owe you.
• Managing accounts payable well helps you avoid late fees, keep good supplier relationships, and see your cash flow more clearly.
• Use automated accounts payable tools to speed up invoice processing, cut manual work, and pay suppliers on time.

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 represents your outstanding bills and short-term financial obligations.

Think of accounts payable as the 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 refer to the team or business function that manages these payments. In larger companies, the accounts payable team typically handles tasks like:

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

If you run a small business, you might handle accounts payable yourself or delegate it to a bookkeeper or advisor. Whoever manages it, a clear accounts payable process helps you avoid late fees, keep good supplier relationships, and maintain accurate records.

Accounts payable vs accounts receivable

Accounts payable and accounts receivable sit on opposite sides of your business transactions. The simplest way to tell them apart is to look at who owes whom.

Accounts payable is 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 is what others owe you:

• money other people 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 how you manage cash flow. Accounts payable is money going out, while accounts receivable is money coming in.

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 liability:

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

Current liabilities are debts you expect to pay within one year. Accounts payable usually falls into this group, 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 reporting and business planning.

The accounts payable process

A consistent process makes sure every supplier bill is checked, approved, and paid on time. You can follow these steps for handling supplier invoices from receipt to payment:

1. Receive the invoice from your supplier.
2. Verify the invoice and match it against the purchase order and delivery record.
3. Route the invoice for approval.
4. Record the amount owed, including any GST you can reclaim.
5. Schedule the payment before the due date.
6. Pay the supplier and reconcile the transaction against your bank records.

In Singapore, you can settle supplier bills in a few ways, including GIRO, PayNow, FAST transfer, cheque, and corporate credit card. Choose the method that suits your cash flow and gives you a clear record to reconcile against.

Managing accounts payable with Xero

Managing accounts payable well keeps your business running smoothly, with bills paid on time and cash flow you can predict. Poor accounts payable management can lead to late fees, strained supplier relationships, and cash flow problems.

Managing accounts payable well brings a few clear benefits:

• avoid late fees by using automated reminders to pay bills on time
• keep supplier relationships strong by paying consistently
• see your cash flow clearly by tracking what you owe and when it's due
• cut manual work by automating invoice processing and payment scheduling
• support planning with accurate accounts payable records

Xero's accounts payable tools help small businesses stay on top of their bills. You can track invoices, schedule payments, and pay bills from one place, with a clear view of what you owe.

With automated bank feeds and invoice matching, Xero helps take care of much of the manual work in accounts payable, so you can spend more time focusing on growing your business.

Simplify accounts payable with Xero

Xero helps bring your bills, payments, and records together so you can manage accounts payable with less admin. Try it for yourself and get one month free.

FAQs on accounts payable

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

What is the difference between accounts payable and accounts receivable?

Accounts payable is the money you owe suppliers for goods or services bought on credit. Accounts receivable is the money your customers owe you for what you've sold them.

Is accounts payable an asset or liability?

Accounts payable is a liability, since it's money you owe to others. It sits under current liabilities on your balance sheet.

What is the accounts payable process?

It covers receiving a supplier invoice, verifying it, approving it, scheduling the payment, then paying and reconciling it. You can find a step-by-step walkthrough in our guide to the accounts payable process.

Is accounts payable a debit or credit?

Accounts payable is a credit entry when you record a new bill, because it increases what you owe. You debit accounts payable later, when you pay the bill and reduce the balance.

What is days payable outstanding (DPO)?

Days payable outstanding (DPO) measures the average number of days your business takes to pay its suppliers. A higher DPO means you hold onto cash longer, though paying too late can strain supplier relationships.

Related terms

• Accounts receivable
• Invoice
• Current liabilities
• Balance sheet

Learn more about accounts payable

• The accounts payable process
• What is accounts receivable?
• Payments
• Bookkeeping and accounting