What are accounts payable?
Accounts payable is the money a business owes its suppliers for goods or services it has received and been invoiced for but not yet paid.
What accounts payable means
When a supplier delivers on credit and sends a bill, the amount owed is recorded in accounts payable until you pay it. It is a current liability on the balance sheet. In UK accounts it usually appears as trade creditors.
The purchase ledger in your accounting software holds the detail: every unpaid bill, each supplier's balance and an aged creditor report showing what is due when.
The accounts payable process
- Bill received, ideally captured automatically by an app such as Dext or by email-in
- Checked against the order or delivery note and approved
- Coded to the right expense account and VAT rate
- Scheduled for payment by its due date
- Paid, usually in a weekly or fortnightly batch, with a remittance advice sent to the supplier
Example
A café owes its suppliers at month end:
| Supplier | Amount | Due |
|---|---|---|
| Coffee roaster | £1,800 | In 14 days |
| Bakery | £950 | In 7 days |
| Dairy | £620 | Overdue 5 days |
| Equipment servicing | £400 | In 30 days |
| Total | £3,770 |
The café has £2,900 in the bank. Paying the dairy now, the bakery next week and the roaster after the weekend's takings keeps every supplier on terms without going overdrawn.
Why it matters for your business
Accounts payable is a source of short-term funding: every day of credit a supplier gives you is a day you keep the cash. Paying too early can strain cash flow; paying late damages relationships, can lose you discounts and may lead to late payment interest being charged. Accurate payables also matter at the year end, because unpaid bills are still costs of the period and reduce profit.
Recording bills as they arrive, rather than only when paid, also means you can reclaim the input VAT on them in the right VAT quarter.
Controls and fraud
Accounts payable is where invoice fraud happens. A common scam is an email, apparently from a known supplier, saying their bank details have changed. Always confirm new or changed bank details by phoning the supplier on a number you already hold, not one in the email. Separating who approves bills from who makes payments, and reviewing payment runs before they go, are simple controls that protect even very small businesses.
Common questions
Not in itself. The expense is recorded when the bill is received, and accounts payable is the liability showing you still owe the money. When you pay, the liability is cleared and cash falls; the expense has already been counted.
Most UK businesses work on 30-day terms, so paying on average within 30 to 45 days is normal. Paying much faster than your customers pay you puts pressure on cash; paying much later than agreed risks supply and reputation.