Accounts Payable (AP) refers to the amount a business owes to its suppliers and vendors for goods or services received but not yet paid for. It is a short-term liability on the balance sheet and a key part of managing cash flow in any business, especially in fast-paced industries like ecommerce and wholesale.
Accounts Payable Process and Procedures
The accounts payable process and procedures are the standardized steps a business follows to manage and pay its outstanding bills. A well-structured AP process ensures that payments are made accurately, on time, and with proper documentation—reducing the risk of errors, fraud, or missed deadlines.
Typical accounts payable procedures include:
- Purchase Order (PO) Creation – Issued when placing an order with a vendor.
- Goods/Services Receipt – Confirming receipt of products or services.
- Invoice Matching – Comparing the vendor invoice to the PO and receipt (3-way match).
- Invoice Approval – Routed to the appropriate department or manager for sign-off.
- Payment Processing – Scheduled based on payment terms (e.g., Net 30, Net 60).
- Recording the Journal Entry
Debit: Accounts Payable
Credit: Cash or Bank Account (once payment is made)
A clearly documented accounts payable process helps maintain vendor relationships, avoid late fees, and ensure compliance during audits.
Accounts Payable and Accrued Expenses: What’s the Difference?
While accounts payable and accrued expenses are both liabilities, they differ in timing and documentation:
- Accounts Payable is for amounts owed to vendors based on actual invoices received.
- Accrued Expenses are recorded when an expense has been incurred but not yet invoiced. These are estimated amounts based on the matching principle in accrual accounting.
Example:
- You receive a bill for inventory you purchased — this goes into accounts payable.
- You owe your 3PL for warehousing services used this month but haven’t been invoiced yet — this goes into accrued expenses.
Both AP and accruals are essential for accurate financial reporting, especially under GAAP or when preparing for investor due diligence.
Why It Matters in Ecommerce and Wholesale
Efficient management of accounts payable and accrued expenses helps ecommerce brands:
- Track cash flow and upcoming obligations
- Maintain accurate profit & loss and balance sheet reporting
- Build trust with vendors by paying on time
- Plan for future expenses even when invoices haven’t arrived yet
If you're using tools like Finaloop, your AP and accrued expenses can be tracked automatically and synced with your bank and vendor accounts, keeping your books real-time and tax-compliant.
Check out our article to see how accounts payable impacts days payable outstanding (DPO), which is part of the cash conversion cycle.