Accounts payable 101: streamlining payments for business success

Accounts payable is where a business's cash goes out the door. Managed well, it keeps cash flow predictable and supplier relationships strong. Managed badly, it leads to late fees, duplicate payments, strained suppliers and exposure to invoice fraud.

Choosing the right accounts payable software helps, but software alone does not make a good process. Clear ownership of approvals, a few simple controls and a regular payment rhythm matter just as much.

This guide covers what accounts payable is, the challenges Australian businesses commonly face, a simple workflow you can adopt, and the practices that keep payments accurate and on time.

What is accounts payable?

Accounts payable is the money a business owes to its suppliers for goods or services it has received but not yet paid for. When a business receives goods or services before paying for them, the outstanding amounts are recorded as accounts payable and appear as a current liability on the balance sheet.

Accounts payable and cash flow

Accounts payable affects the cash flow statement. That statement shows how changes in the balance sheet and profit affect cash and cash equivalents.

When a business uses the full credit terms its suppliers allow, it holds on to cash for longer for other needs, which improves net cash from operating activities in the period the payables balance increases; once payables settle at a steady level the benefit stops. Paying later than the agreed terms is a different matter: it can attract late fees (where the contract allows them) and damage supplier relationships.

What is the difference between accounts payable and accounts receivable?

Accounts payable (AP) and accounts receivable (AR) are opposite sides of the same kind of transaction. Accounts payable is the money a business owes to its suppliers, while accounts receivable is the money owed to the business by its customers.

They also sit in different places in the financial statements. AP appears on the balance sheet under current liabilities, while AR appears under current assets.

Accounts payable vs trade payables

The terms accounts payable and trade payables are often used interchangeably, but they are not quite the same. Under AASB 137 paragraph 11(a), trade payables cover goods or services received or supplied that have been invoiced or formally agreed with the supplier. They are not limited to inventory or goods for resale. A business may use separate internal accounts for stock and service suppliers, but that grouping does not change the definition.

For instance, invoiced amounts owed for merchandise and for the store’s electricity can both be trade payables: one is for goods and the other for a service.

An accounts-payable ledger commonly tracks supplier balances for both goods and services. Distinguish those invoiced or formally agreed amounts from accruals for costs incurred but not yet invoiced or formally agreed, and reconcile the ledger to the balance sheet.

Why is accounts payable important?

For small and medium businesses, managing accounts payable well is central to the health of the business. Beyond paying bills on time, it supports cash flow planning and good supplier relationships.

Reliable payers are better placed to negotiate discounts and better terms, and to secure supply when it is tight. Overall, an effective AP process has a direct effect on cash flow and stability.

What are the common challenges with managing accounts payable?

Small and medium businesses often run into the same accounts payable problems.

• Cash flow pressure and late payments: paying late can strain supplier relationships, trigger late fees and affect the business's credit standing.
• Inaccurate records and duplicate invoices: small errors and duplicate invoices, left unchecked, lead to wrong balances, overpayments and missed payments.
• Fraud: fake invoices and emails asking you to change a supplier's bank details are a common scam, and weak internal controls make them easier to pull off.
• Manual, time-consuming processes: paper invoices and manual data entry cause delays and errors, and the workload grows with the business.

Visory and your accounts payable

Visory runs bookkeeping, payroll, accounts payable and accounts receivable for growing Australian businesses. A dedicated team does the work, helped by Delphi, Visory's AI, which the team oversees.

Every business pays its suppliers differently, so the accounts payable process is set up around how your business works, including who approves what.

A simple accounts payable workflow

Whoever runs your accounts payable, in-house or outsourced, a sound workflow has the same steps. Each step needs a named owner.

1. Capture: every supplier invoice goes to one inbox or one place in your accounting software, never to individual staff.
2. Check: confirm the supplier is real and already set up, match the invoice to a purchase order or the goods or services received, and check the GST and the supplier's ABN on the tax invoice. If a supplier gives no ABN you generally have to withhold 47% from the payment unless an exception applies, and without a valid tax invoice you cannot claim the GST credit on purchases over $82.50.
3. Approve: a named person approves each invoice before it is paid. Set limits, for example a manager approves invoices up to an agreed amount and an owner or director approves anything above it.
4. Schedule and pay: run payments on a regular cycle (weekly or fortnightly), paying each invoice by its due date, with the payment batch released by someone other than the person who entered the bills.
5. Reconcile: match payments to the bank statement and the supplier's statement, and investigate anything that does not line up.

For example, a 15-person design studio might have its office manager capture and code every bill, the operations lead approve bills under $5,000, a director approve anything larger, and the director release one payment run every Thursday after reviewing the batch.

In a well-run business, the people preparing the bills, approving them and releasing the payments are not all the same person. Splitting those roles is one of the simplest protections against error and fraud.

How to streamline your accounts payable management

As a business grows, so do its supplier bills. The steps below make the process faster without weakening the controls.

Streamlining accounts payable

1. Move from manual to automated workflows: use your accounting software or an AP tool to read invoice data, route bills for approval and schedule payments. This saves time and reduces keying errors, but someone still needs to review exceptions.
2. Electronic invoicing: receiving invoices as PDFs or, better, as e-invoices through the Peppol network means less paper and faster processing. E-invoicing is voluntary for Australian businesses, and an e-invoice can be a valid tax invoice.
3. Up-to-date data: keep bills entered as they arrive so you always know what you owe and when it falls due.
4. Cash planning: track upcoming payments against your cash flow forecast so money is available when bills fall due.
5. Expert support: an experienced bookkeeping team can review your process, set up approval rules and run it for you.

Best practices for streamlining your accounts payable

Streamlining accounts payable is about accuracy and security as much as speed. These practices help whoever looks after your AP do it well.

1. Automate your accounts payable

Automation reduces manual entry errors, speeds up processing and helps make sure payments go out on time. That improves cash flow planning and can reduce costs.

2. Switch to electronic invoicing

Electronic invoices can be processed faster than paper ones. They are less likely to go missing and are easy to store and find later.

Ask your suppliers to send invoices electronically, and use software that can receive e-invoices and connects to your accounting system.

3. Seek out early payment discounts

Some suppliers offer a discount for paying before the due date. Over a year, these discounts can add up.

Ask suppliers whether they offer one, weigh the discount against holding the cash, and flag eligible invoices so they are paid within the discount window.

4. Check for duplicate payments

Duplicate payments happen when the same invoice arrives twice (for example by email and by post), is entered twice, or is paid from a statement and again from the invoice.

Check each new bill against the supplier, invoice number and amount before it is approved. Many accounting packages can warn you about a repeated invoice number for the same supplier; check the setting is turned on. Review the accounts payable ledger regularly, and confirm any request to change a supplier's bank details by phoning the supplier on a number you already hold, never one given in the email.

5. Regular reconciliation

Reconciliation checks that your accounts payable records match your general ledger, your bank statements and your suppliers' statements. It is how you find discrepancies, errors and possible fraud.

Set aside time each month for reconciliation, and use software that highlights mismatches for review.

Getting help with accounts payable

If you would rather not run supplier payments yourself, Visory can take on your accounts payable management.

Efficiency and productivity

Handing over bill capture, coding and payment preparation frees you and your team from paperwork and manual tracking of supplier invoices.

Accuracy and reliability

An overlooked bill or an incorrect supplier invoice can throw out your numbers. Visory's dedicated team, working with Delphi, checks transactions against your records so your balance sheet stays right.

Security and compliance

You stay in control: your business decides who approves bills and payments, and the approval rules are agreed with you when the process is set up.

Bills are recorded with the GST and tax invoice details your business needs for its BAS.

Savings and profitability

Paying on time avoids late fees and puts you in a position to take up early payment discounts where suppliers offer them.

A consistent accounts payable process also means fewer surprises in your cash flow, and Visory Insights, walked through with your Business Performance Partner, helps you see what your spending means for the business.

Let Visory streamline your accounts payable

Managing accounts payable brings real challenges, from cash flow pressure and fraud risk to the time spent on manual processing. A clear workflow with named owners, a few simple controls and a regular payment cycle deals with most of them.

To see how Visory runs accounts payable for growing businesses, see how Visory works in practice or book a discovery call.