Accounts payable (AP) is money your business owes vendors for goods or services you've received but haven't paid for. It's a current liability. Accounts receivable (AR) is money customers owe your business for goods or services you've delivered but haven't been paid for. It's a current asset.
AP is future cash going out. AR is future cash coming in. The gap between when you pay vendors and when customers pay you decides how much cash you actually have, which is why the two need to be managed together.
Accounts Payable vs Accounts Receivable at a Glance
| Accounts payable (AP) | Accounts receivable (AR) | |
|---|---|---|
| What it means | Money you owe vendors | Money customers owe you |
| Who owes whom | Your business owes the vendor | The customer owes your business |
| Money direction | Cash going out (later) | Cash coming in (later) |
| Balance sheet | Current liability | Current asset |
| Normal balance | Credit | Debit |
| Main document | Vendor invoice (a bill you receive) | Customer invoice (a bill you send) |
| Typical workflow | Procure-to-pay | Order-to-cash |
| Main KPI | Days payable outstanding (DPO) | Days sales outstanding (DSO) |
| Risk if mismanaged | Late fees, duplicate payments, strained vendors | Slow collections, bad debt, cash shortfalls |
| Example | A $5,000 supplier invoice due in 30 days | An $8,000 invoice you sent a customer, due in 30 days |
One business's AP is another business's AR. When you buy on credit, your vendor records that same invoice as accounts receivable.
What Is Accounts Payable?
Accounts payable is the amount your business owes suppliers and service providers for things you've already received, when payment is still pending. It's generally a current liability, because supplier invoices are normally settled within the company's short-term operating cycle. Actual payment timing depends on the terms you agree with each vendor, such as Net 30 or Net 60. For a full definition with examples, see our guide to what accounts payable is.
The AP workflow (procure-to-pay)
Before paying, many teams compare the purchase order, receiving record, and invoice (three-way matching) so they don't pay for goods that never arrived or at the wrong price. The full set of steps is covered in our accounts payable process guide.
Why AP matters: paying on terms keeps vendors happy and avoids late fees. Paying too early gives up cash you could use elsewhere, unless there's an early-payment discount worth taking. Paying too late risks fees, strained relationships, and in some cases held shipments.
What Is Accounts Receivable?
Accounts receivable is the amount customers owe your business for goods or services you've already delivered, when their payment is still pending. It's a current asset because you expect to collect it soon. Extending credit is common in B2B sales, where customers pay on terms instead of upfront. For more depth, see this guide to what accounts receivable is.
The AR workflow (order-to-cash)
Open invoices are tracked on an AR aging report by how overdue they are. If a customer falls behind, the account moves into collections. When payment arrives, it's matched to the right invoices (cash application). Some disputed or uncollectible balances are eventually written off as bad debt.
Why AR matters: revenue on the income statement isn't cash in the bank until the customer pays. A business can report strong sales and still struggle to make payroll if customers pay slowly.
Key Differences Between AP and AR
Accounts payable
- You owe someone else
- Starts when you receive a vendor invoice
- Ends when you pay the vendor
- Owned by the AP team
- Goal: pay accurately and on terms
- Watch: DPO, on-time payment rate, AP aging
Accounts receivable
- Someone else owes you
- Starts when you send a customer invoice
- Ends when the customer pays and cash is applied
- Owned by the AR, credit, or collections team
- Goal: collect quickly with fewer disputes
- Watch: DSO, AR aging, collection effectiveness
What they have in common
- Both are short-term trade balances created by buying or selling on credit
- Both are classified as current items on the balance sheet
- Both depend on agreed payment terms, like Net 30
- Both affect working capital and the cash conversion cycle
- Both rely on accurate invoices, aging reports, and reconciliation
AP vs AR: A Simple Example
A furniture maker starts the month with $20,000 in cash. On Day 0 it receives $50,000 of lumber from a supplier on Net 30 terms (AP) and ships $80,000 of furniture to a retail chain, also on Net 30 (AR). Both are due on Day 30. Here's what happens to cash in two scenarios:
| Day | Scenario A: retailer pays on time | Scenario B: retailer pays 30 days late |
|---|---|---|
| Day 0 | Cash $20,000; AP $50,000; AR $80,000 | Cash $20,000; AP $50,000; AR $80,000 |
| Day 30 | Collects $80,000, pays $50,000. Cash: $50,000 | Pays $50,000 but collects nothing. Cash: -$30,000 (shortfall) |
| Day 60 | Cash: $50,000 | Finally collects $80,000. Cash: $50,000 |
The business is equally profitable in both scenarios. But in Scenario B it needs $30,000 of savings, a credit line, or a delayed vendor payment to get through Days 30 to 60. That gap is why AP and AR have to be planned together.
AP vs AR in Accounting
AP and AR vs revenue, expenses, and cash
A common mix-up is treating AR as revenue or AP as an expense. They're related, but they're different things on different statements.
| Item | What it is | Where it appears |
|---|---|---|
| Revenue | Value earned from a sale | Income statement |
| Accounts receivable | The amount from that sale you haven't collected yet | Balance sheet (asset) |
| Expense | Cost incurred to run the business | Income statement |
| Accounts payable | The amount for that cost you haven't paid yet | Balance sheet (liability) |
| Cash | Money actually received or paid | Balance sheet and cash flow statement |
In short: revenue doesn't mean cash received, and an expense doesn't mean cash paid. AR links a credit sale to future cash collected. AP links a credit purchase to future cash paid.
How AP and AR fit the accounting equation
| Transaction | Assets | Liabilities | Equity |
|---|---|---|---|
| Sell $8,000 of services on credit | AR +$8,000 | No change | +$8,000 (revenue) |
| Customer pays $8,000 | Cash +$8,000, AR -$8,000 | No change | No change |
| Buy $5,000 of inventory on credit | Inventory +$5,000 | AP +$5,000 | No change |
| Pay the $5,000 invoice | Cash -$5,000 | AP -$5,000 | No change |
Under common accounting frameworks, including GAAP and IFRS, a liability is classified as current when it's expected to be settled in the normal operating cycle, or within 12 months when no clear cycle exists. Assets like receivables follow the same logic. See IAS 1 Presentation of Financial Statements for the IFRS definition.
AP and AR Journal Entries
Accounts payable
Buy $5,000 of inventory on credit
| Account | Debit | Credit |
|---|---|---|
| Inventory | $5,000 | |
| Accounts Payable | $5,000 |
Pay the invoice
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | $5,000 | |
| Cash | $5,000 |
AP goes up with a credit and down with a debit.
Accounts receivable
Deliver $8,000 of services on credit
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | $8,000 | |
| Revenue | $8,000 |
Customer pays
| Account | Debit | Credit |
|---|---|---|
| Cash | $8,000 | |
| Accounts Receivable | $8,000 |
AR goes up with a debit and down with a credit.
How AP and AR Affect Cash Flow and Working Capital
- Cash flow statement: under the indirect method, an increase in AR reduces operating cash flow (sales made but not collected), and an increase in AP adds to it (costs incurred but not paid).
- Working capital: high AR looks strong on paper only if it's actually collectible. Stretching AP too far can boost working capital briefly while damaging vendor relationships.
- Warning signs: AR growing faster than sales can point to slow-paying customers or loose credit terms. AP climbing faster than purchases can mean cash strain, or a deliberate move to longer terms.
AP, AR, and the Cash Conversion Cycle
The cash conversion cycle (CCC) shows how many days your cash is tied up between paying vendors and collecting from customers. It uses three measures:
- DSO (days sales outstanding): average days to collect from customers (AR side)
- DIO (days inventory outstanding): average days inventory sits before it's sold
- DPO (days payable outstanding): average days to pay vendors (AP side)
A shorter cycle means cash comes back faster. But a higher DPO isn't automatically better. Pushing past agreed terms can cost you late fees, early-payment discounts, and supplier goodwill. The goal is to pay on terms and collect on terms, not to win one side at the expense of the other.
KPIs for Accounts Payable and Accounts Receivable
| Side | KPI | What it tells you |
|---|---|---|
| AP | Days payable outstanding (DPO) | Average days to pay vendors |
| AP | On-time payment rate | Share of invoices paid by the due date |
| AP | Invoice processing time | Days from invoice receipt to ready for payment |
| AP | AP aging | Unpaid vendor invoices grouped by how overdue they are |
| AR | Days sales outstanding (DSO) | Average days to collect from customers |
| AR | Collection effectiveness index (CEI) | How much of the collectible balance you actually collected |
| AR | Current vs overdue AR % | Share of receivables not yet due vs past due |
| AR | AR aging | Unpaid customer invoices grouped by how overdue they are |
Learn more in our guides to accounts payable metrics and the AP aging report.
Who Manages AP and AR?
| Function | Typical owner | Main focus |
|---|---|---|
| Accounts payable | AP team, within accounting or finance | Processing vendor invoices and payments |
| Accounts receivable | AR, credit, or collections team | Invoicing customers, collections, and cash application |
| Oversight | Controller or CFO | Cash planning, working capital, and controls |
In small businesses, one bookkeeper may handle both. As companies grow, the roles usually split.
Why AP and AR Need to Be Managed Together
Looking at AP or AR alone gives you half the picture. Together, they tell you whether you'll have enough cash when bills come due. Finance teams that manage them together:
- Line up big vendor payments with expected customer collections
- Review AP and AR aging reports side by side each week
- Set customer credit terms that don't run longer than vendor terms without a plan
- Use a short-term cash forecast built from both sides
- Take early-payment discounts only when collections support it
Common AP and AR Mistakes and Myths
AP mistakes
- Paying invoices without checking them against the PO and receipt
- Missing early-payment discounts because approvals are slow
- Losing track of upcoming bills, which makes cash forecasts unreliable
- Paying the same invoice twice
AR mistakes
- Extending credit to new customers without a credit check
- Waiting too long to follow up on overdue invoices
- Treating collections as an afterthought instead of a routine
- Leaving payments unapplied, so customers look more overdue than they are
On both sides, relying on spreadsheets and email can increase the risk of errors, delays, duplicate work, and limited visibility.
Myths
Myth: A high AR balance always means a healthy business.
Reality: Not if much of it is more than 90 days overdue. Old receivables may never be collected.
Myth: Paying vendors as early as possible is always smart.
Reality: Paying early gives up cash unless an early-payment discount is worth more than holding the cash.
Myth: AR is the same as revenue, and AP is the same as an expense.
Reality: Revenue and expenses are income statement items. AR and AP are balance sheet amounts still to be collected or paid.
Myth: Automation removes the need for accounting knowledge.
Reality: Software speeds up capture, matching, and reminders, but credit decisions, disputes, and vendor relationships still need experienced people.
AP and AR Technology
Both sides of the cash cycle can be automated, but the tools do different jobs:
AP automation helps with
- Capturing vendor invoice data with OCR
- Flagging duplicate invoices
- Matching invoices to POs and receipts
- Routing invoices for approval
- Tracking payment status and audit history
AR automation helps with
- Sending invoices and payment reminders
- Prioritizing collections by risk and age
- Tracking and routing disputes
- Applying payments to the right invoices
- Monitoring customer credit and AR aging
The accounting doesn't change. AP is still a liability and AR is still an asset. Automation just gets accurate information to the people managing cash faster. For a look at specific tools on both sides, see our comparison of AP and AR software.
Managing AP and AR in Salesforce
Differenz System, the publisher of this blog, makes two Salesforce-native apps, one for each side.
Quick Payable handles AP: invoice capture with AI OCR, duplicate detection, approval routing by approver limit, payment status, and an audit trail.
Quick Receivable is accounts receivable software for collections, dispute management, cash application, and credit scoring. Both keep the data in Salesforce alongside your customer and vendor records.
See How Quick Payable Manages AP in Salesforce
Bring a few real vendor invoices and your approval policy to a short demo. Try it free for 15 days, no credit card required.
Key Takeaways
- AP is money you owe vendors (a current liability). AR is money customers owe you (a current asset).
- AP increases with a credit; AR increases with a debit.
- Neither is the same as an expense or revenue, and neither is cash until it's paid or collected.
- The timing gap between paying vendors and collecting from customers decides your real cash position.
- Track DPO and DSO together, and pay and collect on terms rather than optimizing one side alone.
Frequently Asked Questions
What is the difference between accounts payable and accounts receivable?
Accounts payable is money your business owes vendors for goods or services already received. Accounts receivable is money customers owe your business for goods or services already delivered. AP is a liability and future cash out; AR is an asset and future cash in.
Is accounts payable an asset or a liability?
Accounts payable is a liability. It is generally classified as a current liability because supplier invoices are normally paid within the company's short-term operating cycle.
Is accounts receivable an asset or a liability?
Accounts receivable is an asset. It is generally a current asset because the business expects to collect the cash from customers within its normal operating cycle.
What is an example of accounts payable and accounts receivable?
If a furniture maker buys $50,000 of lumber on Net 30 terms, that is accounts payable. If it ships $80,000 of furniture to a retailer on Net 30 terms, that is accounts receivable. The same invoice is AP for the buyer and AR for the seller.
How do AP and AR affect cash flow?
AR represents cash you expect to receive, and AP represents cash you expect to pay. If customers pay later than you have to pay vendors, you can run short of cash even when the business is profitable.
How do AP and AR affect working capital?
Working capital equals current assets minus current liabilities. AR increases current assets and AP increases current liabilities, so both directly change working capital.
What is the difference between DPO and DSO?
Days payable outstanding (DPO) measures how long, on average, a business takes to pay vendors. Days sales outstanding (DSO) measures how long it takes to collect from customers. Both feed into the cash conversion cycle.
Is accounts receivable the same as revenue?
No. Revenue is the value earned from a sale and appears on the income statement. Accounts receivable is the part of that sale not yet collected and appears on the balance sheet.
Are AP and AR both current accounts?
Yes, in most cases. Both arise from short-term credit transactions and are normally settled within the operating cycle, so AP is a current liability and AR is a current asset.
What is the difference between AP automation and AR automation?
AP automation focuses on capturing, checking, approving, and tracking payment of vendor invoices. AR automation focuses on invoicing customers, sending reminders, managing collections and disputes, and applying incoming payments.
Dadhich Rami is a technology professional with 10+ years of experience in Salesforce solutions, AppExchange applications, and third-party integrations. He writes for Quick Payable about accounts payable, AP automation, and Salesforce, with a focus on practical solutions that improve business workflows and efficiency.