Chapter 6

How to manage accounts payable

Paying bills isn’t glamorous. But they’re debts and need to be dealt with. Let’s look at how to manage accounts payable.

What is accounts payable?

If you have bills, you have accounts payable. It’s the opposite side of accounts receivable and the aim is to pay bills on time, without running your bank balance too low.

Why does it matter?

You want to maintain good terms with suppliers – if you’re slow paying them, they may stop your credit or delay deliveries.You also need to think about cash flow. Your bank balance could take a beating if you paid everyone at once. And that would leave you with little cash to cover other expenses, unexpected costs, or to fund business growth.

How to manage accounts payable

  • Bills from vendors are first recorded as money owed.
  • They’ll then go through an approval process, to make sure the goods or services were received.
  • Once approved, payment is scheduled according to the vendor’s payment terms. The longer your payment terms are, the better for your cash flow. On the other hand, it’s nice to take advantage of early payment discounts if they’re on offer.
  • When payment is made, the books are updated to show the bill isn’t owed anymore.

Remember your balance sheet? It’s also called your statement of financial position. It’s best to ensure the amount of money owed to you as accounts receivable is more than what’s owed by you as accounts payable.

Modern accounts payable management

You can enter bills into your ledger by typing them in or by emailing them to your accounting software. There are also clever software apps that read and extract data from bills and automatically send it to your accounting software. The accounting software creates the book entry and helps you schedule payments, then updates your ledger when the bill is settled.

Disclaimer: Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.

How to do bookkeeping

Bookkeeping includes everything from basic data entry to tax prep. Let’s look at the core jobs and see how they’re done.

Download the guide on how to do bookkeeping

Learn about the eight core bookkeeping jobs, from data entry to reporting and tax prep. Fill out the form to receive the guide as a PDF.

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