{"id":29835,"date":"2026-04-23T11:21:29","date_gmt":"2026-04-23T10:21:29","guid":{"rendered":"https:\/\/www.sage.com\/en-gb\/blog\/?post_type=sage_glossary&#038;p=29835"},"modified":"2026-04-23T11:21:30","modified_gmt":"2026-04-23T10:21:30","slug":"what-is-accounts-payable","status":"publish","type":"sage_glossary","link":"https:\/\/www.sage.com\/en-gb\/blog\/glossary\/what-is-accounts-payable\/","title":{"rendered":"What is accounts payable? (Definition and examples)"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-gb\/blog\/glossary\/\" class=\"entry-header__link\">Glossary definition<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tWhat is accounts payable? (Definition and examples)\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"What is accounts payable? (Definition and examples)\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-gb\/blog\/glossary\/what-is-accounts-payable\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n<\/header>\n\n\n\n<p><\/p>\n\n\n\n<p>Understanding how accounts payable (AP) is essential for keeping your business finances organised and managing outgoing payments smoothly.<\/p>\n\n\n\n<p>As a business owner or accountant, tracking what your company owes is just as important as tracking what it earns.<\/p>\n\n\n\n<p>That&#8217;s where accounts payable (AP) comes in.<\/p>\n\n\n\n<p>Whether you&#8217;re managing invoices, ensuring timely payments, or optimising cash flow, understanding accounts payable is key to maintaining good relationships with suppliers and keeping your business financially healthy.<\/p>\n\n\n\n<p>This guide will explain what accounts payable means, how it works, and how to manage it effectively.<\/p>\n\n\n\n<p id=\"h-here-s-what-we-ll-cover\"><strong>Here&#8217;s what we&#8217;ll cover:<\/strong><\/p>\n\n\n<?xml encoding=\"utf-8\" ?><div class=\"wp-block-yoast-seo-table-of-contents yoast-table-of-contents\"><ul><li><a href=\"#h-accounts-payable-definition\" data-level=\"2\">Accounts payable definition<\/a><\/li><li><a href=\"#h-what-does-accounts-payable-mean-for-an-accounting-department\" data-level=\"2\">What does accounts payable mean for an accounting department?<\/a><\/li><li><a href=\"#h-accounts-payable-versus-bills-payable\" data-level=\"2\">Accounts payable versus bills payable<\/a><\/li><li><a href=\"#h-accounts-payable-examples\" data-level=\"2\">Accounts payable examples<\/a><\/li><li><a href=\"#h-how-to-record-accounts-payable\" data-level=\"2\">How to record accounts payable<\/a><\/li><li><a href=\"#h-what-is-the-relationship-between-cash-flow-and-accounts-payable\" data-level=\"2\">What is the relationship between cash flow and accounts payable?<\/a><\/li><li><a href=\"#h-accounts-payable-in-accounting\" data-level=\"2\">Accounts payable in accounting<\/a><\/li><li><a href=\"#h-features-to-look-for-in-accounts-payable-software\" data-level=\"2\">Features to look for in accounts payable software<\/a><\/li><li><a href=\"#h-managing-accounts-payable-effectively\" data-level=\"2\">Managing accounts payable effectively<\/a><\/li><li><a href=\"#h-accounts-payable-faqs\" data-level=\"2\">Accounts payable FAQs<\/a><\/li><\/ul><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-accounts-payable-definition\"><strong>Accounts payable definition<\/strong><\/h2>\n\n\n\n<p>At its core, accounts payable refers to the money your business owes to suppliers, vendors, or creditors in exchange for goods or services.<\/p>\n\n\n\n<p>These debts are typically short-term liabilities, meaning they must be paid within a set period\u2014often 30, 60, or 90 days.<\/p>\n\n\n\n<p>An AP system lets your accounting team avoid frequent payments for each transaction.<\/p>\n\n\n\n<p>Instead, suppliers will enable you to buy on credit, making it easier to manage cash flow and operational expenses.<\/p>\n\n\n\n<p>The term accounts payable can also refer to the department within your company responsible for processing invoices and paying creditors.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-does-accounts-payable-mean-for-an-accounting-department\"><strong>What does accounts payable mean for an accounting department?<\/strong><\/h2>\n\n\n\n<p>For an accounting team, accounts payable is more than just a list of unpaid invoices.<\/p>\n\n\n\n<p>Here&#8217;s why AP management matters:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-tracking-company-liabilities\"><strong>Tracking company liabilities<\/strong><\/h3>\n\n\n\n<p>Every unpaid supplier invoice is recorded as a current liability on your balance sheet, ensuring accurate financial reporting.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-managing-cash-flow\"><strong>Managing cash flow<\/strong><\/h3>\n\n\n\n<p>A well-organised <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/accounts-payable-process\/\">AP process<\/a> helps your business balance payments and cash reserves, so you can cover expenses without financial strain.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-avoiding-late-fees-and-penalties\"><strong>Avoiding late fees and penalties<\/strong><\/h3>\n\n\n\n<p>Paying suppliers on time not only prevents extra costs but also builds trust and strengthens business relationships.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-accounts-payable-versus-bills-payable\"><strong>Accounts payable versus bills payable<\/strong><\/h2>\n\n\n\n<p>While accounts payable and bills payable may sound similar, they refer to different financial obligations.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Accounts payable<\/strong> refers to a broader term. It includes all short-term obligations your business owes after purchasing goods or services on credit. It&#8217;s recorded as a current liability on your balance sheet and represents the total amount due to suppliers.<\/li>\n\n\n\n<li><strong>Bills payable<\/strong>, on the other hand, are the specific documents\u2014like invoices or bills\u2014that represent these individual obligations. Each bill payable is a short-term financial obligation and forms part of your overall accounts payable balance. These must be settled within the agreed timeframe.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-accounts-payable-examples\"><strong>Accounts payable examples<\/strong><\/h2>\n\n\n\n<p>Understanding accounts payable is easier when you see it in action.<\/p>\n\n\n\n<p>Here are some common accounts payable examples:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-1-buying-office-supplies-on-credit\"><strong>1. Buying office supplies on credit<\/strong><\/h3>\n\n\n\n<p>Imagine your business orders office supplies from a vendor with a 30-day payment term.<\/p>\n\n\n\n<p>Instead of paying upfront, you log the invoice as accounts payable and settle it by the due date.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-2-purchasing-inventory-for-resale\"><strong>2. Purchasing inventory for resale<\/strong><\/h3>\n\n\n\n<p>If you run a retail business, you might buy inventory from a supplier on a 60-day payment term.<\/p>\n\n\n\n<p>Instead of paying up front, the invoice stays in accounts payable until the due date.<\/p>\n\n\n\n<p>This way, you can stock your shelves and keep sales going without immediately dipping into your cash reserves.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-3-hiring-a-cleaning-service\"><strong>3. Hiring a cleaning service<\/strong><\/h3>\n\n\n\n<p>Your company hires a cleaning service that invoices at the end of the month.<\/p>\n\n\n\n<p>Until the payment is processed, the amount is recorded as accounts payable, reflecting the short-term liability on your balance sheet.<\/p>\n\n\n\n<p>These examples show how AP helps manage short-term debts efficiently, allowing your business to maintain operations while controlling cash flow.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-how-to-record-accounts-payable\"><strong>How to record accounts payable<\/strong><\/h2>\n\n\n\n<p>Managing accounts payable properly helps keep your business financially stable and your suppliers happy.<\/p>\n\n\n\n<p>Here are the simple steps to record AP in your <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/accounts-payable-process\/\">accounts payable process<\/a>:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-1-receive-the-invoice\"><strong>1. Receive the invoice<\/strong><\/h3>\n\n\n\n<p>Your supplier sends an invoice after delivering goods or services.<br><\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-2-verify-the-invoice\"><strong>2. Verify the invoice<\/strong><\/h3>\n\n\n\n<p>Your accounting team checks that the invoice matches the purchase order and delivery receipt to ensure accuracy.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-3-record-the-payable\"><strong>3. Record the payable<\/strong><\/h3>\n\n\n\n<p>The invoice amount is logged as a liability in your general ledger, reflecting what your business owes.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-4-schedule-the-payment\"><strong>4. Schedule the payment<\/strong><\/h3>\n\n\n\n<p>A payment date is set based on agreed terms to avoid late fees and maintain healthy cash flow.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-5-process-the-payment\"><strong>5. Process the payment<\/strong><\/h3>\n\n\n\n<p>Once the invoice is paid, it&#8217;s marked as settled, and the liability is removed from your books.<\/p>\n\n\n\n<p>A clear and structured AP process keeps your business organised, prevents errors like duplicate payments, and strengthens vendor relationships.<\/p>\n\n\n\n<p>Using <a href=\"https:\/\/www.sage.com\/en-gb\/accounting-software\/accounts-payable\/\">accounts payable software<\/a> can simplify the process even further by automating invoice matching, tracking due dates, and ensuring accurate record-keeping\u2014helping you stay on top of payments with less manual effort.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-the-relationship-between-cash-flow-and-accounts-payable\"><strong>What is the relationship between cash flow and accounts payable?<\/strong><\/h2>\n\n\n\n<p>Accounts payable plays a significant role in managing your business&#8217;s cash flow.<\/p>\n\n\n\n<p>Delaying payments within agreed terms allows you to keep cash available for other expenses like payroll, rent, or inventory purchases.<\/p>\n\n\n\n<p>This flexibility helps you balance outgoing payments with incoming revenue and avoid unnecessary cash shortages.<\/p>\n\n\n\n<p>But be careful\u2014missing payment deadlines can damage your relationships with suppliers, lead to late fees, and even impact your ability to negotiate better terms in the future.<\/p>\n\n\n\n<p>One way to stay on top of this is by tracking your AP turnover ratio\u2014a metric that shows how quickly your business pays its suppliers.<\/p>\n\n\n\n<p>A high ratio means settling debts quickly, while a lower ratio might indicate potential cash flow challenges.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-accounts-payable-in-accounting\"><strong>Accounts payable in accounting<\/strong><\/h2>\n\n\n\n<p>Accounts payable is key to your business&#8217;s financial reporting and cash flow management.<\/p>\n\n\n\n<p>Keeping track of AP lets your business stay on top of its obligations while making wise financial decisions.<\/p>\n\n\n\n<p>Here are a few critical AP concepts to know:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-cash-flow-management\"><strong>Cash flow management<\/strong><\/h3>\n\n\n\n<p>Staying on top of AP ensures your business has enough cash to cover expenses without liquidity issues.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-early-payment-discounts\"><strong>Early payment discounts<\/strong><\/h3>\n\n\n\n<p>Some suppliers offer discounts for paying early, which can help cut costs and improve supplier relationships.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-ap-turnover-ratio\"><strong>AP turnover ratio<\/strong><\/h3>\n\n\n\n<p>This metric shows how quickly your business pays suppliers.<\/p>\n\n\n\n<p>A higher ratio means settling debts fast, while a lower one might signal cash flow challenges.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-features-to-look-for-in-accounts-payable-software\"><strong>Features to look for in accounts payable software<\/strong><\/h2>\n\n\n\n<p>Looking to streamline your AP process and cut down on manual work?<\/p>\n\n\n\n<p>The right accounts payable software can automate invoice processing, reduce errors, and help you stay compliant.<\/p>\n\n\n\n<p>Here are some key features to look for:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-invoice-capturing\"><strong>Invoice capturing<\/strong><\/h3>\n\n\n\n<p>Automatically captures and processes invoice details, so you don&#8217;t have to enter them manually.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-approval-workflows\"><strong>Approval workflows<\/strong><\/h3>\n\n\n\n<p>Simplifies invoice approvals by routing them to the right people, ensuring nothing gets stuck in the pipeline.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-automated-payment-scheduling\"><strong>Automated payment scheduling<\/strong><\/h3>\n\n\n\n<p>This feature helps you pay suppliers on time, avoid late fees, and take advantage of early payment discounts.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-auto-matching-with-ai\"><strong>Auto-matching with AI<\/strong><\/h3>\n\n\n\n<p>Uses artificial intelligence to automatically match invoices to purchase orders and create draft transactions.<\/p>\n\n\n\n<p>This speeds up reconciliation, supports easy daily soft-closing, and removes the need for manual matching or document hunting.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-payment-flexibility\"><strong>Payment flexibility<\/strong><\/h3>\n\n\n\n<p>Gives you the option to issue payments using each vendor&#8217;s preferred method, including cheques, BACS, or virtual cards, making the payment process more convenient for everyone.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-integration-with-accounting-software\"><strong>Integration with accounting software<\/strong><\/h3>\n\n\n\n<p>Syncs seamlessly with your financial records for better tracking and reporting.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-fraud-detection-and-security\"><strong>Fraud detection and security<\/strong><\/h3>\n\n\n\n<p>Keep your business safe by flagging duplicate invoices, suspicious transactions and preventing unauthorised payments.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-managing-accounts-payable-effectively\"><strong>Managing accounts payable effectively<\/strong><\/h2>\n\n\n\n<p>Whether you&#8217;re a small business owner or an accountant, handling AP efficiently can make a big difference in your company&#8217;s financial health.<\/p>\n\n\n\n<p>With the right processes and tools, you can automate payments, set deadline reminders, and improve overall financial management.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-accounts-payable-faqs\"><strong>Accounts payable FAQs<\/strong><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-1-what-financial-statement-is-accounts-payable-on\"><strong>1. What financial statement is accounts payable on?<\/strong><\/h3>\n\n\n\n<p>Accounts payable are listed under current liabilities on the balance sheet since they represent money your business owes to suppliers.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-2-does-accounts-payable-go-on-the-income-statement\"><strong>2. Does accounts payable go on the income statement?<\/strong><\/h3>\n\n\n\n<p>No, AP does not appear on the income statement because it&#8217;s a liability, not an expense.<\/p>\n\n\n\n<p>Expenses are recorded when incurred, while AP tracks what your business still needs to pay.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-3-what-s-the-difference-between-accounts-payable-and-accounts-receivable\"><strong>3. What&#8217;s the difference between accounts payable and accounts receivable?<\/strong><\/h3>\n\n\n\n<p>Both <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/accounts-payable-vs-accounts-receivable-guide\/\">accounts payable and accounts receivable<\/a> track money moving in and out of your business, but they represent opposite sides of a transaction:<\/p>\n\n\n\n<p>Accounts payable: the money your business owes to suppliers for goods or services received on credit. It&#8217;s recorded as a liability on your balance sheet until paid.<\/p>\n\n\n\n<p>Accounts receivable: the money customers owe your business for products or services you&#8217;ve provided. It&#8217;s recorded as an asset since it represents incoming cash.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-4-is-accounts-payable-a-credit-or-debit\"><strong>4. Is accounts payable a credit or debit?<\/strong><\/h3>\n\n\n\n<p>When recorded, AP is a credit entry (increasing liabilities).<\/p>\n\n\n\n<p>When paid, it&#8217;s a debit entry (reducing liabilities).<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-5-is-accounts-payable-an-asset-or-a-liability\"><strong>5. Is accounts payable an asset or a liability?<\/strong><\/h3>\n\n\n\n<p>Accounts payable are a current liability because they reflect outstanding payments that your business must settle within a short period.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Understanding how accounts payable (AP) is essential for keeping your business finances organised and managing outgoing payments smoothly.<\/p>\n","protected":false},"author":1911,"featured_media":0,"template":"","meta":{"_sage_video":false,"footnotes":""},"tags":[23,135,127,25,311],"class_list":["post-29835","sage_glossary","type-sage_glossary","status-publish","hentry","tag-bookkeeping","tag-business-finances","tag-financial-education","tag-make-receive-payments","tag-payments"],"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice UK","distributor_original_site_url":"https:\/\/www.sage.com\/en-gb\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/sage_glossary\/29835","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/sage_glossary"}],"about":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/types\/sage_glossary"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/users\/1911"}],"version-history":[{"count":1,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/sage_glossary\/29835\/revisions"}],"predecessor-version":[{"id":29836,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/sage_glossary\/29835\/revisions\/29836"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/media?parent=29835"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/tags?post=29835"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}