Accounts Payable
Short-term liabilities representing amounts a business owes to suppliers and vendors for goods or services received but not yet paid.
Accounts payable (AP) is the balance sheet liability representing money a company owes to its suppliers, vendors, and creditors for goods and services it has received but has not yet paid for. AP is classified as a current liability because it is typically due within 30, 60, or 90 days, depending on agreed payment terms.
Effective AP management is critical to maintaining healthy vendor relationships, capturing early payment discounts, and optimizing working capital. Paying too early depletes cash unnecessarily; paying too late damages supplier relationships and can incur late fees or interest.
The AP process typically includes: receiving vendor invoices, matching them against purchase orders and goods receipts (three-way matching), obtaining approvals, scheduling payments, and reconciling the AP subledger to the general ledger. For growing companies, this process becomes increasingly complex as invoice volume scales.
AP automation platforms — such as Bill.com, Tipalti, and AvidXchange — digitize and streamline this workflow by using OCR to capture invoice data, routing invoices for electronic approval, and automating payment execution via ACH, wire, or virtual card. These tools can dramatically reduce invoice processing cost from an industry average of $12–$30 per invoice to under $3.
Key AP metrics include Days Payable Outstanding (DPO), which measures how long a company takes to pay its vendors on average. A higher DPO can indicate strong negotiating power or potential cash flow strain, depending on context. AP is also a primary target for fraud, making internal controls such as segregation of duties essential.
FAQs
What is the difference between accounts payable and accrued expenses?
Accounts payable represents amounts owed for invoices already received from vendors. Accrued expenses are liabilities for costs incurred but for which no invoice has yet been received — such as accrued salaries at month-end or accrued interest on a loan.
How does AP automation reduce fraud risk?
AP automation enforces consistent approval workflows, flags duplicate invoices, maintains a digital audit trail of every action taken on an invoice, and enables segregation of duties by preventing the same person from both approving invoices and initiating payments.
What payment terms are most common in B2B?
Net 30 is the most common standard payment term, meaning payment is due 30 days after the invoice date. Net 60 and Net 90 are common in larger enterprises. Early payment discount terms like '2/10 Net 30' (2% discount if paid within 10 days) are also widely used.
Related Terms
Accounts Receivable
Amounts owed to a business by customers for goods or services delivered but not yet paid for.
Three-Way Matching
An accounts payable control process that verifies a vendor invoice against the corresponding purchase order and goods receipt before approving payment.
Days Payable Outstanding
The average number of days a company takes to pay its vendors, measuring how efficiently a company manages its accounts payable.
Purchase Order
A formal document issued by a buyer to a seller specifying the goods or services, quantities, prices, and delivery terms for a purchase transaction.
