What Is Accounts Payable? Explain With Real World Examples

In business accounting, accounts payable (AP) refers to the short-term debts a company owes to its suppliers or service providers. These liabilities typically arise when a company purchases goods or services on credit and must be repaid within a specific time frame—usually 30 to 90 days.

Managing accounts payable correctly is critical for healthy cash flow, avoiding late fees, and maintaining strong vendor relationships. This guide explains what is accounts payable in accounting, provides real-life accounts payable examples, and explores how businesses can improve their AP process.

What Is Accounts Payable in Accounting?

In simple terms, payables definition refers to the money a company owes to its vendors for products or services already received. In other words, it is the amount a business owes for goods and services purchased on credit. These amounts appear as current liabilities on the balance sheet until they are paid off.

Accounts payable is a vital part of working capital management because it represents a company’s ability to meet short-term obligations while keeping enough cash for other investments.

Companies that understand AP management can leverage payment terms, take advantage of supplier discounts, and improve financial performance.

Accounts Payable vs. Accounts Receivable

Accounts payable (AP) and accounts receivable (AR) are two sides of the same financial coin, but they represent very different flows of money within a business. Accounts payable is the money a company owes to its suppliers for goods or services received. In contrast, accounts receivable is the money owed to the company by its customers for products or services delivered, and it appears as a current asset.

Managing both AP and AR effectively is crucial for healthy cash flow management. While AP focuses on the company’s obligations to pay others, AR tracks the funds the company expects to receive.

By understanding how much the company owes (AP) versus how much it is owed (AR), finance teams can make informed decisions to optimize cash flow, support growth, and ensure financial stability.

Types of Accounts Payable

There are several types of accounts payable that businesses commonly record. These may vary by industry but generally include:

·        Supplier Invoices – Payments for raw materials or inventory.

·        Contractor Services – Fees for third-party providers such as IT support or cleaning.

·        Subscriptions – Recurring services like SaaS or memberships.

·        Utilities – Monthly charges for electricity, water, and internet.

·        Professional Services – Consulting, legal, or accounting fees.

Each of these obligations creates an accounts payable entry that must be accurately tracked to avoid discrepancies.

Accounts Payable Workflow

The accounts payable process is a structured workflow that ensures vendor invoices are managed and paid accurately and on time. The workflow typically begins with invoice receipt, followed by data extraction to capture key invoice details. Next, invoices are coded to the appropriate accounts, reviewed, and routed through an approval workflow. Once approved, payments are processed according to the company’s policies and payment terms.

After approval, the invoices are scheduled for payment according to the agreed-upon payment terms. Throughout this process, minimizing manual data entry is key to reducing errors and avoiding duplicate payments.

Many organizations are now turning to accounts payable automation and automation software to streamline the AP process, allowing the payable department to handle higher volumes of vendor invoices with greater speed and accuracy.

What Is Accounts Payable Automation?

AP automation is the use of software to streamline invoice capture, approval, and payment—eliminating the inefficiencies of manual data entry. An AP automation platform is a comprehensive solution that automates the entire accounts payable workflow, integrating invoice processing, routing, approvals, and payment reconciliation. These platforms connect seamlessly with accounting software and accounting systems, centralizing data and streamlining reconciliation.

AP Automation has proven to transform accounts payable workflows. For example, in the manufacturing industry, Laurentide Controls automated their AP processes and reduced invoice processing time by over 50%, while cutting manual errors by more than 70%. This allowed their finance team to handle growing invoice volumes without adding headcount.

With AP automation, companies gain the ability to:

·        Digitize invoices through intelligent document capture, including receiving invoices electronically to streamline the workflow

·        Automate approvals with customizable workflows, accelerating invoice approval and reducing bottlenecks

·        Schedule payments to optimize cash flow

·        Monitor AP metrics in real time for better financial control

·        Automated invoice processing and automating invoice processing using advanced invoice processing software, which captures, codes, and routes invoices for approval, improving speed and accuracy

·        Capture and extract invoice data accurately, ensuring seamless integration into the accounting system

·        Simplify coding invoices by automating categorization and reducing manual errors

By improving the invoice process, organizations save time, minimize human error, and strengthen vendor relationships—while benefiting from faster cycle times and increased operational efficiency.

Best Practices for Managing the Accounts Payable Department

To manage AP efficiently, businesses can:

·        Automate Invoice Processing – Reduce manual workload and accelerate processing, allowing companies to process invoices up to 3x faster. Automation also streamlines the payment process, resulting in greater efficiency and improved cash flow management.

·        Negotiate Payment Terms – Early payment discounts and favorable terms become easier to leverage when invoices are processed quickly and accurately.

·        Reconcile Accounts Regularly – Automated reconciliation tools ensure ledgers remain accurate while reducing the risk of missed payments.

·        Monitor KPIs – Built-in analytics help track Days Payable Outstanding (DPO) and AP turnover ratio, offering visibility into performance and cash flow health.

·        Build Vendor Trust – Timely payments, supported by automation, are essential for maintaining strong supplier relationships and avoiding late payment penalties. Timely, error-free payments supported by automation strengthen supplier relationships and create opportunities for better terms.

By integrating a solution like Process Fusion’s AP Automation, businesses not only streamline their operations but also unlock measurable savings and improved financial agility.

The Bottom Line on Accounts Payable and Cash Flow

Understanding what is accounts payable in accounting and managing it effectively is essential for business success. Accounts payable is more than just paying bills—it’s a strategic part of financial management.

When supported by automation, accounts payable becomes a driver of growth rather than a burden on resources.