Every time your business receives goods or services and hasn’t paid for them yet, that’s accounts payable. It sounds simple — but for small businesses, a poorly managed AP process can quietly wreak havoc on cash flow, supplier relationships, and financial reporting.
This blog post covers what accounts payable is, how it differs from receivables, how automation and Xero fit in, and when outsourcing makes more sense than doing it yourself.
Table of Contents
What is Accounts Payable?
Accounts payable (AP) refers to the short-term liabilities a business owes to suppliers and vendors for goods or services received on credit. It sits on the balance sheet as a current liability, typically due within 30, 60, or 90 days.
AP isn’t just an accounting entry – it directly affects cash flow. Pay too early and you drain cash reserves. Pay too late and you risk late fees or strained supplier relationships. A well-managed AP process keeps payments on time, vendors happy, and your cash position clear.
Accounts Payable vs. Accounts Receivable
This is the most common point of confusion in small business accounting but the distinction is simple.
Accounts payable is money your business owes to suppliers. It’s a liability.
Accounts receivable is money owed to your business by customers. It’s an asset.
Both appear on the balance sheet but move in opposite directions. A practical example: a tradie purchases materials on 30-day terms (AP) while waiting on payment from a client for completed work (AR). In a small business, both often fall to the same person to manage.
The Accounts Payable Process and Journal Entries
The standard AP workflow follows five steps: receive the invoice, verify it against the purchase order, code and approve it, record the liability, then process payment within agreed terms.
A simple journal entry when a $2,000 invoice arrives:
- Debit: Office Supplies Expense $2,000
- Credit: Accounts Payable $2,000
When payment is made:
- Debit: Accounts Payable $2,000
- Credit: Cash/Bank $2,000
Accounting software handles these entries automatically once the invoice is entered, which is exactly why getting your AP process set up correctly from the start matters.
Accounts Payable Automation: Benefits & How It Works
Manual AP is one of the biggest time drains in small business finance. Accounts payable automation solutions remove most of that friction.
Modern tools use OCR and AI to capture invoice data automatically, match it to purchase orders, route it for approval, and schedule payment. The results: fewer errors, faster processing, real-time visibility over outstanding liabilities, and audit-ready records – without manual data entry at every step.
How Accounts Payable Software Works with Xero
For most Australian small businesses, Xero is the natural home for AP. As a Xero Platinum Partner, Befree works with Xero’s AP features daily.
In Xero, supplier invoices are entered as bills, approved, scheduled, and batch-paid – with journal entries created automatically, and bank feeds reconciling payments in real time. Xero also connects with dedicated accounts payable software like Dext, ApprovalMax, and Hubdoc, adding OCR capture and multi-level approval workflows on top of Xero’s core features.
For businesses processing more than a handful of invoices each month, this combination cuts AP processing time significantly and gives a clear, real-time view of what’s owed.
Automate or Outsource? Why More Small Businesses Are Choosing to Outsource AP
Automation helps but tools still need someone to manage them. Invoice exceptions need human review. Supplier queries need responses. The bookkeeping still needs to be accurate.
That’s why growing businesses are moving beyond automation alone to accounts payable outsourcing services – handing the entire AP function to a dedicated external team. Invoice receipt, verification, coding, approval coordination, payment processing, and reconciliation all handled for you.
The cost case is clear: a full-time AP officer comes with salary, super, leave, and training overhead. Outsourcing delivers the same outcome at typically 50–60% less and removes key-person risk entirely.
Want to dive deeper? Check out Why Accounts Payable Outsourcing Is Essential for All Sized Businesses?
Befree’s bookkeeping outsourcing services include AP management as part of a fully integrated finance function — payables, receivables, and reconciliations handled together, not in silos.
For Australian compliance obligations around financial records, refer to the ATO’s record-keeping guidelines.
Get AP Off Your Plate
Accounts payable seems manageable until invoice volumes grow and your team gets stretched. The businesses that stay on top of it invest in the right tools, the right partner, or both.
Befree’s team manages your AP alongside bookkeeping, payroll, and accounting, so your suppliers get paid on time and you get your time back.
Find out what it actually costs to outsource your AP. Get in touch with Befree today.