Accounts Payable
Definition
Accounts payable is the total amount of money a business owes to its suppliers and vendors for goods and services already received but not yet paid for.
What Accounts Payable Means for Your Business
What it means
Accounts payable, or AP, is the flip side of AR. It is what you owe: supply houses, fuel cards, subcontractors, utility bills, software subscriptions. Until you pay, it is a liability on the balance sheet.
Why it matters
AP management is a cash flow lever. Paying too fast drains the bank. Paying too slow burns vendor relationships and can trigger credit holds that stop trucks from getting parts.
How contractors use it
Good shops pay strategically: on time to preserve supplier relationships, but not early unless they get an early-pay discount. The AP clerk runs a weekly payables report and schedules checks or ACH runs.
Real-World Example
A roofing contractor with $180,000 in monthly AP captured $2,700 per month in 2% early-pay discounts by paying key suppliers within 10 days. That added $32,400 to annual net profit.
Related Terms
Accounts Receivable
Accounts receivable is the total amount of money owed to a business by customers for services already delivered but not yet paid.
Payment Terms
Payment terms are the written rules that define when and how a customer must pay for services rendered.
Cost of Goods Sold
Cost of goods sold, or COGS, is the direct cost of labor and materials required to deliver the services you billed, excluding overhead.
Net 30
Net 30 is a payment term that gives the customer 30 calendar days from the invoice date to pay the full amount due.
Invoice
An invoice is a billing document that lists the work performed, parts used, and total amount due from the customer.
Put This Into Practice with Free Software
Kaldr Tech handles accounts payable and everything else you need to run your shop. $0/month, 3.5% + 30¢ per transaction.