What is Accounts Payable?


Example entries	When invoiced: Debit expense/inventory; Credit Accounts Payable. When paid: Debit Accounts Payable; Credit Cash.
Different from	Accounts receivable: money customers owe to you. Accrued expenses: expenses incurred but not yet invoiced.
Also known as	AP, trade payables, vendor payables
Branch	Finance and accounting
Common in	All industries, especially companies with many vendors, corporate cards, and frequent travel spending.

What Is Accounts Payable?

Accounts payable (AP) is the amount of money your company has promised to pay suppliers, vendors, and other partners for goods or services already received.

This matters because AP shows what you owe right now and when you need to pay it. For example, if your company books flights and hotels through a travel agency on 30‑day terms, the invoices sit in accounts payable until you pay them.

In business travel and expense management, AP connects employee spending, vendor invoices, and actual cash leaving the bank. A clean AP process keeps vendors happy, prevents late fees, supports accurate budgets, and gives finance a real‑time view of travel and expense costs.

What Are the Key Components of Accounts Payable?

Key Components	Definition
Vendors	Anyone you owe money to: airlines, hotels, travel agencies, software providers, consulting firms, and more.
Invoices	Bills you receive from vendors. In travel, this might be a monthly invoice from your travel management company, or a hotel folio for a team offsite.
Purchase orders (POs)	Formal requests to buy something, often required for larger or recurring spend. The PO should match the invoice and the final payment.
Payment terms	Agreed timing like “Net 30” (due in 30 days) or “Due on receipt.” Good AP management uses these terms to avoid late fees and to optimize cash flow.
AP ledger	The list of all outstanding vendor balances in your accounting system, usually grouped under “Accounts Payable” on your balance sheet.

What Is the Typical Accounts Payable (AP) Workflow From Purchase Request to Payment?

1. Purchase requisition is created and approved.

2. (If PO-based) A purchase order is issued to the vendor.

3. Goods or services are received and recorded (receipt/GRN).

4. The vendor submits an invoice; AP captures and codes it to the correct GL/cost center.

5. AP performs a match:

3-way match (PO, receipt, invoice) or 2-way match for non-PO invoices.
Resolve exceptions and obtain any needed approvals.

6. Payment is scheduled per terms (e.g., discounts, due dates) and executed (ACH, check, wire, card).

7. Remittance advice is sent; the invoice is closed.

8. Accounting updates: debit expense/inventory, credit AP on receipt; then debit AP, credit cash on payment; balances reconcile and records are retained.

Good to Know
For non-PO invoices, the PO and receipt steps are skipped, with approval and coding done prior to payment.

How Has Accounts Payable Evolved Over Time?

Accounts payable has evolved from a manual, paper-based function into a largely digital, automated process. Historically, paper invoices were mailed or faxed, clerks typed data into spreadsheets or legacy accounting systems, and paper checks were printed, signed, and mailed. Today, invoices are typically received in digital formats (PDF or structured electronic data), with OCR and AI extracting key details, and systems automatically matching invoices to purchase orders and receipts.

Payments are executed electronically via ACH, virtual cards, or integrated bank transfers, and approvals and exceptions are routed digitally. Platforms such as Navan, Ramp, and SAP Concur connect travel and expense data to AP, allowing vendor invoices to reconcile automatically with real booking and card data, which improves accuracy, speeds up cycle times, and strengthens controls.

What Are Some Common Misconceptions About Accounts Payable?
“AP is just bill paying.” In reality, it is a control center for approvals, budgets, and cash planning. “AP handles only vendor invoices.” AP also covers reimbursements, card payables, and sometimes taxes and fees. “AP is separate from travel and expense.” When systems are integrated, AP, travel, and expense share the same data to reduce duplication and errors.

What Are Some Common Misconceptions About Accounts Payable?

“AP is just bill paying.”

In reality, it is a control center for approvals, budgets, and cash planning.

“AP handles only vendor invoices.”

AP also covers reimbursements, card payables, and sometimes taxes and fees.

“AP is separate from travel and expense.”

When systems are integrated, AP, travel, and expense share the same data to reduce duplication and errors.

Why Do Accounts Payable Matter?

Companies with a strong accounts payable process typically see fewer payment errors, better cash control, and stronger vendor relationships.

Here's why:

Companies have more cash flow control.

A clear AP schedule shows exactly when cash will leave your bank, so you can plan spending and avoid surprises.

Companies save costs.

Timely, accurate payments help you avoid late fees and may unlock early‑payment discounts from key vendors.

Companies can enforce stronger compliance and controls.

When AP is connected to your travel policy and approvals, you catch out‑of‑policy spending before money goes out.

Companies gain better visibility into travel and expense spend.

Clean AP data lets finance see total travel and expense costs by team, project, or region, not just card swipes.

Companies reduce financial risks.

Controls around AP reduce fraud, duplicate payments, and paying for services you never received. Companies that connect AP with their travel and expense systems, using platforms like Navan or other modern tools, usually see faster close cycles and more accurate reporting.

How Do Accounts Payable Work in Practice?

Typical AP process steps:

1. Capture the purchase request

An employee requests a flight, hotel, software, or service.
Approval happens in a travel tool (like Navan Travel), procurement system, or email.

2. Receive and capture the invoice

Vendor emails or uploads a PDF invoice.
Modern AP tools read invoice data automatically using OCR and AI.
Key fields: vendor name, date, due date, line items, tax, total, PO number.

3. Match and approve

AP checks the invoice against:
The original PO or request
Receipts or booking data
Contracted rates (for travel, things like negotiated hotel or airline rates)
If it matches and is in‑policy, a manager or budget owner approves.

4. Code the expense

AP assigns the right general ledger (GL) account, cost center, and project.
For travel, this might be “Airfare – Sales Team – North America.”

5. Schedule payment

AP groups invoices by due date and selects payment method:
Bank transfer / ACH
Virtual card
Check (less common now)
They may time payments to preserve cash but still avoid late fees.

6. Pay and reconcile

Payment is executed.
The accounting system marks the invoice as paid and reduces the AP balance.
Bank transactions are matched to invoices during reconciliation.

Accounts Payable in Action

Scenario 1: Traditional/Manual AP for Travel
A consulting firm uses a traditional, manual accounts payable process for travel. The firm books travel through a travel agency, which sends a thick PDF invoice each month covering hundreds of flights and hotel stays. AP staff print the invoice and manually enter the amounts into a spreadsheet. They email managers to confirm that the trips are valid. Approvals can take days, and errors sometimes slip through. Payments are then batched and issued by check once or twice a month.

Scenario 1: Traditional/Manual AP for Travel

A consulting firm uses a traditional, manual accounts payable process for travel. The firm books travel through a travel agency, which sends a thick PDF invoice each month covering hundreds of flights and hotel stays. AP staff print the invoice and manually enter the amounts into a spreadsheet. They email managers to confirm that the trips are valid. Approvals can take days, and errors sometimes slip through. Payments are then batched and issued by check once or twice a month.

Scenario 2: Modern/Automated AP Integrated with Travel & Expense
A tech company uses Navan for travel booking integrated with a modern AP system. Each employee booking in Navan Travel creates structured trip data, and the travel agency or Navan provides a digital invoice feed. The AP system automatically matches invoice lines to the corresponding trips and cost centers, and managers approve the expenses within the system. Once approved, payments run automatically via ACH or virtual card, and the finance team has a live view of all outstanding travel payables.

Scenario 2: Modern/Automated AP Integrated with Travel & Expense

A tech company uses Navan for travel booking integrated with a modern AP system. Each employee booking in Navan Travel creates structured trip data, and the travel agency or Navan provides a digital invoice feed. The AP system automatically matches invoice lines to the corresponding trips and cost centers, and managers approve the expenses within the system. Once approved, payments run automatically via ACH or virtual card, and the finance team has a live view of all outstanding travel payables.

Scenario 3: Small Business vs Enterprise
In this case the approach to accounts payable differs by company size. In a small business, AP may be handled by a single person using accounting software such as QuickBooks, relying on simple approval rules and basic bank transfers. In an enterprise, AP is managed by a dedicated team running an ERP like SAP or Oracle, enforcing strict approval workflows, supporting multi-currency payments, and managing complex vendor contracts.

Scenario 3: Small Business vs Enterprise

In this case the approach to accounts payable differs by company size. In a small business, AP may be handled by a single person using accounting software such as QuickBooks, relying on simple approval rules and basic bank transfers. In an enterprise, AP is managed by a dedicated team running an ERP like SAP or Oracle, enforcing strict approval workflows, supporting multi-currency payments, and managing complex vendor contracts.

What Are the Common Accounts Payable Challenges and How Can You Solve Them?

Challenge 1: Duplicate or Incorrect Payments

This happens when invoices are entered manually or systems are not connected. To solve this:

Use an AP system that flags duplicate invoice numbers and amounts.
Integrate travel booking and expense tools so invoice data is matched to real trips. Modern platforms like Navan help by tying bookings and expenses to specific travelers and trips, which makes validation easier.

Challenge 2: Slow Approvals and Late Payments

This happens when invoices sit in email or on someone’s desk. To solve this:

Set clear approval rules by amount, department, and vendor.
Use automated reminders and mobile approvals.
Batch approval reviews by due date to avoid late fees.

Challenge 3: Poor Visibility into Total Travel and Expense Spend

This happens when card data, reimbursements, and vendor invoices live in different systems. To solve this:

Centralize all travel bookings in a single platform like Navan Travel.
Sync that data to your AP and reporting tools.
Use consistent GL codes for all travel categories.

Challenge 4: Weak Compliance with Policy

This happens when AP pays whatever gets invoiced, without context. To solve this:

Require pre‑trip approvals and enforce policy at booking time.
Set AP rules to block or flag out‑of‑policy vendors or rates.
Use audit trails so you can see who approved what, and when.

Challenge 5: Manual Data Entry Workload

This happens when AP staff must type invoice details for every vendor. To solve this:

Use OCR and AI to auto‑extract invoice data.
Standardize invoice formats and communication with vendors.
Integrate tools like Navan Expense with AP so expenses sync automatically.

Understanding Accounts Payable, Accounts Receivable, and Accrued Expenses

Aspect	Accounts Payable (AP)	Accounts Receivable (AR)	Accrued Expenses
Direction of Money	Money your company owes others	Money others owe your company	Money your company owes others (future cash outflow).
Balance Sheet Side	Liability (you must pay it)	Asset (you expect to receive it)	Liability (The obligation to pay for services/goods already received).
Main Users	AP team, procurement, finance	AR team, sales, finance	Finance, Accounting (Used heavily during the month-end close process).
Typical Documents	Vendor invoices, POs, payment runs	Customer invoices, statements, payment receipts	Journal entries, work papers/schedules showing the calculation and support for the estimated amounts.
Main Question it Answers	“Who do we owe, how much, and when?”	“Who owes us, how much, and when?”	“What costs have we incurred this month that we haven't been invoiced for yet?”

Understanding accounts payable is easier when you know these related terms:

General ledger (GL): The master record of all your company’s financial transactions. AP entries post to liability and expense accounts in the GL.
Purchase order (PO): A formal document that authorizes a purchase from a vendor. In AP, invoices are often matched to POs before payment.
Three‑way match: A control step where AP matches the purchase order, goods receipt, and vendor invoice. For services like travel, the “receipt” might be trip confirmation or usage data.
Expense management: The process of tracking, approving, and reimbursing employee expenses. Tools like Navan Expense connect expense reports directly to AP and the GL.
Corporate card: A payment card issued to employees for business spend. Card transactions often flow into AP or related payables accounts before being settled.
Travel management company (TMC): A third‑party agency that manages business travel bookings. TMCs often send consolidated invoices that go through AP.
Vendor master data: The central list of vendors and their payment information. Clean vendor data is critical to avoid fraud and payment errors in AP.
Working capital: The money available for day‑to‑day operations. AP is a major part of working capital, since it reflects near‑term cash outflows.