What is Accounts Payable?

Accounts payable, or AP, is the total of unpaid bills from vendors. It is a current liability on the balance sheet because it is normally due within a short period, often 15 to 60 days.

How it arises

When you receive a supplier's invoice and record it as a bill, expenses (or inventory) increase and accounts payable increases. When you pay, cash decreases and accounts payable decreases. Recording bills when they arrive, rather than when paid, gives an accurate view of what you owe.

Why it matters

Accounts payable is a source of short-term financing: paying on agreed terms rather than immediately keeps cash in the business. But late payments damage supplier relationships and can incur fees. Days payable outstanding measures how long you take to pay on average.

Good practice

• Use a single inbox for supplier invoices
• Approve new or unusual bills before payment
• Pay on a regular schedule
• Reconcile supplier statements monthly
• Verify any change of vendor bank details by phone

Our accounts payable process guide walks through a simple setup, and vendor tax details are collected with Form W-9. Compare with accounts receivable.

Related terms

• Accounts Receivable: Accounts receivable is money customers owe your business for goods or services already delivered.
• Balance Sheet: A balance sheet shows what a business owns, what it owes and the owners' equity at a specific date.

Browse more definitions in the small business glossary.