Accounts Payable: What Is It And How It Works

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Accounts Payable Definition
Is Accounts Payable an Asset or Liability?
How Accounts Payable Works
4 Steps of the Accounts Payable Process
1. Invoice Capture
2. Invoice Approval
3. Payment Authorization
4. Payment Execution
Internal Controls and Audits
Purchase order approval Invoice approval Two-way matching (in which invoices are matched to purchase orders) or three-way matching (in which invoices are matched to purchase orders and receiving information) Auditing for duplicates (which involves checking files manually or with an accounts payable automation platform to make sure duplicate payments aren’t made)
Accounts Payable Examples
Licensing costs Leasing costs Subcontractor bills Amounts owed for raw materials and fuel Products and equipment received but not paid for Subscription services Installment payment plans
Accounts Payable vs Accounts Receivable
Trade Payables and Accounts Payables
The Takeaway
3 Small Business Loan Tips
Generally, it can be easier for entrepreneurs starting out to qualify for a loan from an online lender than from a traditional lender. Lantern by SoFi’s single application makes it easy to find and compare small business loan offers from multiple lenders. Traditionally, lenders like to see a business that’s at least two years old when considering a small business loan. SBA loans are guaranteed by the U.S. Small Business Administration and typically offer favorable terms. They can also have more complicated applications and requirements than non-SBA business loans.
Frequently Asked Questions
Photo credit: iStock/KamiPhotos
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About the Author
Mike Zaccardi, CFA, CMT, is a finance expert and writer specializing in investments, markets, personal finance, and retirement planning. He enjoys putting a narrative to complex financial data and concepts; analyzing stock market sectors, ETFs, economic data, and broad market conditions; and producing snackable content for various audiences.
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