Accounts Payable

What is accounts payable?

Accounts payable (often shortened to A/P or AP) is the money your business owes to others—suppliers, vendors, subcontractors, or anyone who has sent you a bill that you haven't paid yet. It's the opposite of accounts receivable.

When you receive materials from a supplier on credit or get an invoice from a subcontractor, that amount goes into your accounts payable until you pay it.

Common examples

For contractors and service businesses, accounts payable typically includes:

• Materials and supplies — Lumber, parts, equipment from suppliers
• Subcontractor invoices — Specialists you hire for specific jobs
• Equipment rentals — Tools or machinery rented for projects
• Utility bills — Electric, gas, water, internet for your shop or office
• Professional services — Accountant, lawyer, bookkeeper fees

Accounts payable vs. accounts receivable

Accounts payable is money you owe TO others—it's a liability. Accounts receivable is money owed TO you—it's an asset. Healthy businesses keep both in balance: collecting receivables fast enough to cover payables without cash flow crunches.

Managing accounts payable

Good AP management means paying bills on time to maintain supplier relationships and credit terms, but not so early that you strain your cash flow. Track due dates, take advantage of early payment discounts when they make sense, and keep records organized for tax time. Late payments can damage relationships and result in fees or loss of credit terms.