Understanding Accounts Payable:
What it is and Why it Matters
How can you optimize your accounts payable? Let’s dive into accounts payable details, its importance, and how to automate it effectively.
How can you optimize your accounts payable? Let’s dive into accounts payable details, its importance, and how to automate it effectively.
Last Updated: January 26, 2026
Yes. Accounts payable (AP) is a current liability because it represents invoices and bills your company owes to suppliers for goods or services already received.
AP increases when an invoice is recorded (but not yet paid) and decreases when payment is posted. This is why AP shows up under current liabilities on the balance sheet and is a key input for cash planning and close reconciliation.
No. Accounts payable is not an asset because it represents an obligation to pay suppliers, not a resource your business owns or controls.
Assets (cash, inventory, equipment) provide future economic benefit. Accounts payable is the opposite: it’s a liability that will be settled with cash, which is why strong accounts payable management focuses on validation, approvals, and controls before payment is released.
Accounts payable are the unpaid supplier invoices and bills a business owes for goods and services received on credit. In accounting terms, AP is a liability; in operational terms, it’s the workflow that turns an invoice into a verified, approved, auditable payment.
In a modern accounts payable process, AP typically includes invoice intake (email, portals, EDI), validation, PO/receipt matching, approvals, payment scheduling, and reconciliation in the ERP.
Accounts payable is typically a credit-balance account. Recording a supplier invoice increases AP (credit), and paying that invoice decreases AP (debit).
Exact journal entries depend on your accounting method and ERP configuration, but the rule of thumb is: credits increase AP, debits reduce it. This is also why AP is generally classified as a current liability.
Recommended reading: The Role of Certified Management Accountants (CMA) in Optimizing Accounts Payable Processes
Not exactly. Accounts payable is the total liability owed to suppliers, while the purchase ledger is the detailed record of supplier transactions that make up that total (vendor, invoice number, dates, amounts, terms).
In practice, the purchase ledger is what supports reconciliation and auditability - especially when you’re tracking invoice status, disputes, credit memos, and approvals across the accounts payable workflow.
Accounts payable (AP) is money your business owes suppliers for purchases on credit, so it’s a liability. Accounts receivable (AR) is money customers owe you for sales on credit, so it’s an asset.
Operationally, AP is managed through invoice validation, matching, approvals, and payments. AR is managed through invoicing and collections. Both affect cash flow, but they move in opposite directions on the balance sheet.
Accounts payable is a liability account - typically a current liability - because it represents amounts owed to suppliers that will be paid in the near term.
AP increases when invoices are recorded and decreases when payments are posted, helping finance track obligations, cash requirements, and the accuracy of the close.
Accounts payable appears on the balance sheet under current liabilities. It represents unpaid supplier invoices and bills that are due within the normal operating cycle.
To keep the balance reliable, AP teams reconcile the purchase ledger, approvals, and vendor statements - so the ERP reflects valid, approved obligations and supports accurate cash planning.
Both are liabilities, but they come from different timing. Accounts payable is recorded when there’s a supplier invoice for goods or services received but not yet paid.
Accrued expenses are recorded when costs have been incurred but an invoice hasn’t been received yet (for example, wages or interest). The difference matters for a clean close and for reconciling AP against what has actually been received.
The main difference between accounts payable and accrued expenses is that accounts payable is recorded from supplier invoices, while accrued expenses are recorded from incurred costs that have not yet been invoiced.
Accounts payable automation uses software to streamline invoice intake, data capture, validation, matching, approvals, and reconciliation. The goal is to reduce manual effort and reduce risk by applying consistent controls.
Modern AP automation goes beyond capture by orchestrating exceptions (missing PO/receipt, price variances, duplicate invoices) as trackable workflows with owners, SLAs, and an audit trail - often integrated with the ERP and AP processing software stack.
The future of process automation in 2026 is the shift from automating isolated tasks to orchestrating end-to-end workflows across documents, systems, and people. It combines RPA, IDP, workflow orchestration, and AI agents to handle exceptions while keeping controls auditable. In AP, that means faster invoice processing with fewer errors, clearer approvals, and governance and compliance built into every handoff.
Accounts payable (AP) sits at the intersection of finance, procurement, and operations. At a basic level, accounts payable is the money your business owes vendors and suppliers for goods and services already received - typically tracked through invoices, credit terms, and payment schedules.
What’s changed in 2025–2026 is the expectation of how AP runs: leaders want faster cycle times, fewer exceptions, better auditability, and tighter integration with ERPs and procurement systems. That’s why the conversation is shifting from “OCR for invoices” to an end-to-end accounts payable process that connects document intake, validation, approvals, payment execution, and reconciliation - with governance and compliance built in.
In practice, modern accounts payable management usually includes these workflow stages:
Concrete example: A supplier invoice arrives by email for a PO-backed shipment. During accounts payable invoice processing, the system extracts line items and compares them to the ERP purchase order; a unit price variance triggers an exception. Instead of pushing the invoice into a generic queue, the workflow routes it to the right owner (procurement for price approval, receiving for quantity confirmation), records the decision for auditability, and releases it for payment once the match is resolved.
As you evaluate accounts payable automation (or AP processing software), look beyond capture. The differentiator is orchestration: how reliably the solution routes exceptions, enforces controls, and keeps humans in the loop where policy requires it - without slowing down “happy path” invoices.
Actionable takeaway: Map your current AP workflow end-to-end and identify your top 3 exception types (e.g., missing PO, price variance, duplicate invoice). Then define the control points (who approves what, what evidence is required, what must be logged) before you automate - so you improve speed and reduce risk at the same time.
Accounts payable (AP) is the part of finance operations that records, tracks, and pays what your company owes suppliers for goods and services already delivered. On the balance sheet, AP appears as a current liability; operationally, it’s the workflow that turns an invoice into an approved, auditable payment.
In 2025–2026, AP is less about “posting invoices” and more about running a controlled, connected accounts payable process across systems - ERP, procurement, receiving, and payments. The goal is to reduce exceptions, prevent duplicate or fraudulent payments, and keep every approval decision traceable for audit and compliance.
At a practical level, most AP teams manage these steps:
Concrete example: A manufacturing firm receives a 200-line invoice for MRO supplies. The invoice number matches a prior submission, so it’s flagged as a potential duplicate. The match step finds a price variance on three lines versus the PO, so AP routes only those lines to procurement for approval while keeping the rest on the “happy path.” Once approved, the invoice is released for payment and the decision trail is stored for audit.
Because AP is document- and exception-heavy, many teams use accounts payable automation and AP processing software to reduce manual data entry and speed up accounts payable invoice processing. The highest-impact improvements usually come from orchestrating exceptions (missing PO, quantity mismatch, price variance) and enforcing controls - not just capturing text from PDFs.
Actionable takeaway: If you’re refining accounts payable management, start by documenting your top 5 exception categories and who owns each resolution path (AP, procurement, receiving, vendor management). Then define the minimum evidence required for approval (PO/receipt, email confirmation, policy exception) so your workflow - and any automation - improves speed without weakening governance.
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Accounts payable is the amount your business owes suppliers and service providers for delivered goods or completed services that have been invoiced (or are ready to be invoiced) but not yet paid. In accounting terms, it’s a short-term liability; in operations terms, it’s the controlled workflow that turns an invoice into a verified, approved payment.
In 2025–2026, many finance teams treat AP as a process discipline as much as an accounting line item. That’s because AP is where document-heavy work (invoices, POs, receipts) meets risk controls (duplicate detection, segregation of duties, approval policy) and system integration (ERP, procurement, supplier portals).
In a mature accounts payable process, AP typically includes:
This is where accounts payable management becomes measurable: how quickly invoices move from receipt to approval, how many require rework, and how reliably controls prevent errors and non-compliant payments.
Concrete example: A distributor receives a supplier invoice for a PO-backed shipment with 120 line items. During accounts payable invoice processing, the system flags a duplicate invoice number and a unit-price variance on five lines. AP rejects the duplicate, routes the variance lines to procurement for approval, and releases the remaining lines once the match is resolved - so payment is accurate, timely, and fully documented for audit.
Because AP is repetitive and exception-heavy, many organizations adopt accounts payable automation - often combining IDP/RPA-style capture with workflow orchestration in an AP processing software stack. The goal isn’t just faster data entry; it’s fewer exceptions, tighter controls, and consistent outcomes across vendors and invoice formats.
Actionable takeaway: Write a one-page AP “definition for your business” that includes (1) which invoice channels you accept, (2) what must be validated before approval, and (3) how exceptions are routed (owner + SLA). That document becomes the baseline for standardizing AP performance - and for selecting or tuning automation without weakening governance.
Recommended reading: Expense Report: Its Role in Accounts Payable (AP)
Accounts payable is not one “type” of spend - it’s a category of obligations created when your business receives value now and pays later. In most organizations, the most visible AP items come from supplier invoices, but AP can also include recurring services and operational bills that must be validated, approved, and paid according to policy.
In a modern accounts payable process, the same question applies to every example: “What evidence do we need to pay this correctly and compliantly?” That evidence might be a PO and receipt in the ERP, a contract and rate card, a time-and-materials statement, or a tax filing schedule - then the invoice is routed, approved, and reconciled. This is why strong accounts payable management focuses on exceptions and controls, not just payment execution.
Here are common, practical accounts payable examples:
Concrete example: A retailer receives a monthly invoice for store utilities and a separate invoice for a PO-backed fixture delivery. During accounts payable invoice processing, the fixture invoice is matched to the PO and receiving record in the ERP, while the utility invoice is validated against the contract rate and meter period. If either invoice includes a vendor banking change, AP routes it for verification (a common fraud control) before payment is scheduled.
Many teams use accounts payable automation to standardize how these examples flow through intake, validation, approvals, and reconciliation. The best results come when AP processing software can orchestrate exceptions (missing PO, duplicate invoices, price variances) and enforce governance - rather than only extracting fields.
Actionable takeaway: Categorize your AP spend into 4–6 “invoice types” (PO-backed goods, recurring bills, services, freight, tax/statutory, other) and define the required evidence and owner for each type. That simple matrix is the fastest way to reduce exceptions, tighten controls, and make automation deliver measurable impact.
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Accounts payable works by turning supplier obligations into controlled, auditable payments. The accounting view is simple (AP increases when an invoice is recorded and decreases when it’s paid), but the operating reality is a workflow that spans documents, approvals, and ERP updates. In 2025–2026, the goal is a consistent process that reduces exceptions, strengthens controls, and keeps cash and vendor terms aligned.
Here’s a practical view of the end-to-end accounts payable process:
Where a ticketing system matters is exception handling. Instead of leaving mismatches in an inbox or spreadsheet, a ticketed workflow assigns an owner, captures evidence (PO, receipt, supplier email), sets an SLA, and records resolution - making accounts payable management more predictable and audit-friendly.
Concrete example: An invoice arrives for a PO-backed shipment, but three lines show a unit price variance. During accounts payable invoice processing, AP creates an exception ticket and routes it to procurement for price approval while sending a separate ticket to receiving to confirm quantities. Once both owners approve (with notes attached), the invoice is released for payment and the ERP posting reflects the resolved variance.
Actionable takeaway: Define 5–7 standard AP ticket types (duplicate invoice, missing PO, missing receipt, price variance, vendor banking change, tax issue, dispute) and assign an owner + SLA for each. Then ensure your accounts payable automation / AP processing software can route those tickets and retain the decision trail in your ERP or workflow orchestration layer.
Recommended reading: Audit Trail in Accounts Payable
Accounts payable is one of the most operationally important parts of finance because it’s where spend, supplier relationships, and payment controls meet. A healthy AP function gives you an accurate view of obligations, supports predictable cash planning, and helps ensure payments are made for valid, approved purchases only.
In 2025–2026, AP is also a risk and governance function. Finance leaders are increasingly expected to reduce exception volume, keep approvals auditable, and prevent errors (or fraud) while still meeting supplier terms and capturing early-payment discounts. That makes the quality of your accounts payable process as important as the accounting output.
When accounts payable management is working well, you can:
Concrete example: An invoice for a PO-backed shipment is received with a vendor banking change and a price variance on several lines. Without a structured workflow, AP might pay late (or pay the wrong account), triggering supplier disruption and reconciliation work. With a controlled accounts payable invoice processing flow, the banking change is verified, the variance is routed for approval, and the invoice is released on time - with the decision trail saved for audit.
This is also where accounts payable automation can have an outsized impact. The best gains typically come from standardizing validation, routing, and exception handling - not just capturing fields - so AP teams spend less time chasing approvals and more time managing risk and supplier performance. For many organizations, that means adopting AP processing software that can orchestrate workflows across ERP, procurement, and payments.
Actionable takeaway: If you want to improve AP outcomes next quarter, start with these steps:
Strong accounts payable management is less about “paying bills” and more about running a repeatable, controlled workflow across people, documents, and systems. The core building blocks are clear payment policy, consistent approvals, accurate records in the ERP, and predictable exception handling - so suppliers get paid correctly and finance can trust the numbers.
In 2025–2026, teams are increasingly standardizing AP around three themes: fewer manual touches, stronger controls, and faster exception resolution. Whether you run AP in-house, through shared services, or with a third-party provider, the same operating model applies.
Use this checklist to tighten your accounts payable process without slowing down payments:
Concrete example: A shared services AP team receives invoices across multiple ERPs. Most PO-backed invoices match automatically, but exceptions (missing receipt, price variance, vendor banking change) create delays and supplier escalations. By routing those exceptions through a ticketing-style workflow with clear owners (receiving, procurement, vendor master) and SLAs, the team reduces “where is my payment?” inquiries and keeps approvals and policy overrides traceable for audit.
This is where accounts payable automation can amplify results. The most effective stacks combine capture (IDP/OCR), workflow orchestration, and controls - so exceptions are routed consistently and the ERP stays the system of record. When evaluating AP processing software, prioritize how well it handles exceptions, approvals, and audit trails, not just data extraction.
Actionable takeaway: In the next 30 days, document your top 5 AP exception types and the required evidence for each (PO, receipt, contract, supplier confirmation). Then assign an owner + SLA per exception and verify your workflow (manual or automated) can enforce those rules end-to-end.
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To calculate accounts payable for a specific period, you need to be clear about what you’re measuring: the ending AP balance on the balance sheet, or the movement in AP driven by invoice activity and payments. In most ERP-led finance teams, AP is calculated as a controlled reconciliation between invoices received, credit memos, payments, and any accrual/adjustment entries.
Formula (high level): Ending AP = Beginning AP + Invoices/charges posted − Payments posted ± adjustments (credit memos, returns/allowances, write-offs, FX differences).
Use these steps to calculate AP accurately and make it useful for cash planning and accounts payable management:
Concrete example: At the start of April, your AP balance is $250,000. During April, the team posts $420,000 in invoices and $18,000 in credit memos, and posts $395,000 in payments. You also record a $5,000 return allowance. Your ending AP is $250,000 + $420,000 − $395,000 − $18,000 − $5,000 = $252,000.
Where this gets tricky is process timing. If invoices are received but not posted (or receipts are missing for three-way match), AP can be understated at month-end unless the accounts payable process includes accrual rules for goods/services already received.
Actionable takeaway: If your close process regularly runs into AP surprises, add two checks: (1) a weekly “unposted invoice” report tied to owners and SLAs, and (2) an exception queue for missing receipts/PO mismatches. Many teams use accounts payable automation or AP processing software to keep those queues moving and ensure the ERP stays aligned with what’s actually been received and approved.
Recommended reading: Cash Flow and Accounts Payable: What You Need to Know
Even well-run accounts payable teams face recurring friction because AP is document-heavy, exception-driven, and dependent on other functions (procurement, receiving, budget owners, and IT). In 2025–2026, the biggest “hidden” challenge isn’t the volume of invoices - it’s the number of handoffs required to validate, match, approve, and pay each invoice with proper controls and auditability.
Common challenges typically cluster into four categories:
Concrete example: A supplier sends an invoice by email for a PO-backed shipment, but the PO number is missing and the receiving record isn’t posted yet. AP can’t match the invoice in the ERP, so it’s routed to a “pending” bucket. Without a ticketed exception workflow, the invoice bounces between AP, receiving, and procurement, and the supplier follows up repeatedly - creating delays and uncertainty in cash forecasting.
This is where accounts payable automation can change the day-to-day experience - if it’s more than capture. The most effective approaches combine document intake (often IDP), validation rules, and workflow orchestration so exceptions are assigned to owners with SLAs and a decision trail. In practice, AP processing software should help you answer “Where is this invoice?” in seconds, not days, while keeping governance and compliance intact.
Actionable takeaway: Pick your top 3 AP bottlenecks and formalize them as “exception types” with owners and SLAs (e.g., missing PO → procurement, missing receipt → receiving, price variance → category manager). Then update your accounts payable process so every exception creates a trackable case (ticket), with required evidence attached and a logged resolution. That single change typically improves accounts payable management, reduces follow-ups, and makes automation easier to apply safely.
Accounts payable is a high-volume workflow with frequent exceptions, which is why the same problems show up across industries - even in mature finance teams. Most issues come from a few root causes: inconsistent invoice intake, weak matching/approvals, and limited visibility into “where an invoice is” at any moment. Below are the most common issues AP teams encounter and how they typically show up in daily operations.
Duplicate invoices and inaccurate line items lead directly to overpayments, write-offs, and reconciliation work. In 2025–2026, this risk is amplified by multi-channel intake (email + portals + EDI) and resubmissions when suppliers don’t see fast status updates.
Prevention usually requires a combination of controls (unique invoice number checks, vendor + amount + date matching) and clear exception routing so duplicates are resolved consistently during accounts payable invoice processing.
Late payments are rarely “just AP being slow.” They often come from approval bottlenecks, missing PO/receipt data, or unclear ownership of exceptions. The result is predictable: strained supplier relationships, missed discounts, and urgent escalations that disrupt the close.
Best-in-class accounts payable management uses SLAs for approvals and exceptions, plus clear visibility into aging and invoice status before invoices become overdue.
Poor record-keeping creates gaps between what’s been received, what’s been approved, and what’s been paid. That can drive duplicate payments, missed credits, and month-end surprises in AP aging and accruals.
Modern AP teams increasingly treat the ERP as the system of record and require every invoice to have a clear status, owner, and supporting evidence attached (PO, receipt, contract, or exception approval).
Weak controls increase the likelihood of unauthorized payments and fraud, especially around vendor master changes (banking details) and policy overrides. Typical failure modes include bypassed approvals, insufficient segregation of duties, and missing audit trails for exceptions.
Controls should be explicit in the accounts payable process: role-based approvals, dual control for sensitive changes, and logged decisions that can be audited without chasing email threads.
Disputes usually start as data mismatches: price variances, quantity discrepancies, missing receipts, or contract interpretation issues. If there’s no structured workflow, disputes linger, suppliers follow up repeatedly, and AP loses leverage over terms.
A ticketed exception path (owner + SLA + evidence) helps resolve disputes faster and keeps payment decisions consistent and defensible.
Process inefficiency shows up as manual re-keying, unclear handoffs, and “stuck” invoices waiting on the same recurring exceptions. It increases cycle time and cost per invoice and makes it harder to scale without adding headcount.
This is where accounts payable automation and workflow orchestration matter most: not just capturing invoice data, but routing exceptions, enforcing controls, and keeping the ERP updated reliably.
When suppliers can’t see invoice status, they resend invoices, call AP, and escalate to business owners - often creating duplicates and delays. Internally, unclear ownership between AP, procurement, and receiving leads to “ping-pong” and missed SLAs.
Concrete example: A supplier emails an invoice that’s missing a PO number. AP can’t match it in the ERP, so it sits pending while the supplier resubmits it twice. A modern AP processing software workflow would open an exception ticket, route it to procurement for PO validation, and send the supplier a status update - preventing duplicates and keeping the approval trail auditable.
Actionable takeaway: Choose 3–5 measurable failure points (duplicate rate, exception rate, on-time payment rate, cycle time) and tie each to a control + owner + SLA. Then standardize exception workflows so every mismatch becomes a trackable case with evidence - this is the fastest path to improving accounts payable process performance and making accounts payable automation deliver consistent results.
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To fix recurring AP issues at scale, you need more than faster data entry. Accounts payable improves when the end-to-end workflow is standardized: invoices are captured consistently, validated against policy, matched to ERP records, routed to the right owner when exceptions occur, and paid with an auditable trail. That’s the practical promise of accounts payable automation in 2025–2026 - workflow orchestration with governance and compliance built in.
Artsyl is a cloud-based intelligent automation platform designed to support this operating model. It helps teams run a controlled accounts payable process that spans document intake, ERP integration, approvals, and exception handling - not just invoice OCR.
With Artsyl, organizations can automate core steps in accounts payable invoice processing across multiple channels, including paper documents, email, supplier portals, and electronic feeds like EDI. The workflow combines intelligent document processing (IDP) with ERP-aware validation and routing, so invoices are processed consistently - even when formats and vendor behavior vary.
In practice, teams use Artsyl to reduce manual touches while strengthening controls across the AP lifecycle:
Concrete example: A PO-backed invoice arrives by email with a price variance on several line items and an updated vendor banking field. InvoiceAction extracts line items, checks for duplicates, and attempts an ERP match. The workflow creates two exception tickets - one to procurement for price approval and one to vendor master data for banking verification - then releases the invoice for payment only after both controls are satisfied, with every decision logged.
That orchestration is what turns accounts payable management from reactive follow-ups into a predictable process: “happy path” invoices flow through quickly, while exceptions are handled consistently and auditably. When implemented well, an AP processing software stack becomes a control system as much as a speed system.
Actionable takeaway: Before you implement or change automation, define your top 5 exception types (e.g., missing PO, missing receipt, price variance, duplicate invoice, vendor banking change). For each, document the owner, required evidence, and SLA. Then configure your workflow so every exception becomes a trackable case with an audit trail - this is where accounts payable automation delivers the most measurable improvement.
Accounts payable is one of the clearest signals of how well a business runs its finance operations. When AP is managed well, leaders get a reliable view of obligations, suppliers get paid on time, and cash planning becomes predictable. When it’s managed poorly, the same issues show up over and over: duplicate invoices, disputes, late approvals, and last-minute “fire drills” at month-end.
In 2025–2026, the expectation is that the accounts payable process is both fast and governed. That means invoice intake is standardized, approvals follow clear policy, exceptions are routed to owners with SLAs, and every decision is auditable in the ERP or workflow layer. The goal isn’t just speed - it’s consistent outcomes: fewer exceptions, fewer payment errors, and fewer supplier escalations.
Concrete example: A supplier submits two versions of the same invoice - one through a portal and one by email - while a receiving record is still missing for three-way match. Without clear controls, AP either pays late (damaging the relationship) or risks paying a duplicate. With strong accounts payable management, the duplicate is flagged, the mismatch becomes a trackable exception, and the invoice is released for payment only after the receipt is posted and the approval is logged.
If you’re deciding where to invest next, focus on the bottlenecks that create the most rework. For many teams, that’s accounts payable invoice processing exceptions (missing PO, missing receipt, price variance, vendor master changes) and approval delays. This is also where accounts payable automation and modern AP processing software can deliver meaningful gains - by orchestrating workflows and enforcing controls, not just extracting fields.
Actionable takeaway: Use this simple next-step checklist to improve AP performance in the next 30–60 days:
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