Accounts Payable

Accounts payable (AP) is the running total of money a business owes to its suppliers for goods or services already received but not yet paid for. It sits on the balance sheet as a current liability and represents invoices due within the next payment cycle - typically 30, 60, or 90 days depending on agreed payment terms. For most small to medium-sized businesses, AP is one of the most actively managed financial areas because the timing of outgoing payments directly affects working capital, cash flow forecasts, and supplier relationships.

How Accounts Payable Works in Practice

When a business receives goods or services, the supplier issues an invoice. Until that invoice is settled, it sits in the AP ledger. The process typically involves four stages: receiving the invoice, verifying it against what was ordered and delivered, coding it to the correct cost category, and scheduling payment in line with agreed terms. In businesses that raise purchase orders before ordering - construction firms, promotional merchandise distributors, electrical contractors - the verification step often involves matching the invoice against both the original PO and the goods received note. This three-way matching process catches pricing discrepancies and short deliveries before money leaves the business.

For SMBs handling 20-50 supplier invoices per week, AP is often managed by a single person - sometimes the business owner alongside other responsibilities. The practical risk is that invoices accumulate, due dates get missed, and supplier relationships deteriorate. A structured AP routine, reviewed at least weekly, prevents this from becoming a recurring problem.

Accounts Payable vs. Accounts Receivable

AP and accounts receivable (AR) are mirror images. AR tracks money owed to the business; AP tracks money the business owes. Managing both well is essential for accurate cash flow forecasting. A business may have a healthy AR balance but still face payment difficulties if AP obligations fall due before customer receipts arrive.

A key metric for monitoring AP health is Days Payable Outstanding (DPO) - the average number of days a business takes to settle supplier invoices. A DPO consistently running beyond agreed payment terms signals cash flow pressure and can lead suppliers to tighten credit terms or require upfront payment on future orders.

Zigaflow's Purchase Orders and Delivery Notes features connect what was ordered with what arrived, giving the AP verification step a clear paper trail before any payment is approved.