Help: Accounts Payable (AP)
Back to BillsThe "Procure-to-Pay" Workflow
Accounts Payable (AP) is the process of managing and paying the money you owe to your suppliers (vendors). It covers the entire lifecycle from ordering goods to making the final payment. We call this the **"Procure-to-Pay"** lifecycle. A well-managed AP process is crucial for maintaining good vendor relationships and managing your company's cash flow.
The AP Lifecycle:
- Purchase Order (PO): You create an official order to a vendor for goods or services.
- Receiving: The vendor delivers the items or services.
- Enter Bill: The vendor sends you an invoice (a "Bill"), which you enter into the system against the original PO.
- Pay Bill: You pay the vendor's bill.
For simple, immediate purchases (like a credit card transaction for office supplies), you can skip this formal process and use the Record Expense feature.
Step 1: Managing Vendors
A "Vendor" is anyone you pay for goods or services—suppliers, contractors, landlords, etc. Before you can enter a bill, you need a vendor record.
Creating a New Vendor
- Navigate to Vendors in the main menu.
- Click the Add New Vendor button.
-
Fill in the key details. Important fields include:
- Vendor Name: The official name of the company.
- Payment Terms: The terms the vendor gives you (e.g., "Net 30"). This helps automatically calculate bill due dates.
- 1099 Eligible: Check this box if the vendor is a US-based contractor who will need a 1099 tax form at the end of the year. This helps you easily run 1099 reports.
- Click Save Vendor.
Step 2: The Purchasing Process (POs & Bills)
Purchase Orders (POs)
A Purchase Order is a formal, internal document you create to authorize and track a purchase from a vendor. It helps prevent unauthorized spending and provides a clear record of what was ordered.
How to Create a PO:
- Navigate to Purchase Orders.
- Click Create New PO.
- Select the Vendor.
- Add the line items you wish to order, including a description, quantity, and the expected cost.
- Save the PO. You can then print or email it to your vendor.
Entering Bills
When you receive an invoice from your vendor, you must enter it as a "Bill" in the system. This officially records the expense and the liability (the money you owe).
How to Enter a Bill:
- From a PO: The best method! Find the original Purchase Order and click the Enter Bill button. The system will pre-fill the bill with the items and costs from the PO, which you can adjust if needed (e.g., if freight charges were added). This is called a "3-way match" (PO-Receipt-Bill) and is a best practice.
- From Scratch: Go to Vendor Bills and click Enter Bill. This is for when there was no initial Purchase Order. You must manually select the vendor and enter the line items from their invoice.
Step 3: Paying Your Vendors
Bill vs. Expense: What's the difference?
- Use Enter Bill when you receive an invoice you will pay later. This correctly increases your Accounts Payable.
- Use Record Expense for purchases you pay for immediately (e.g., with a company credit card, debit card, or cash). This bypasses Accounts Payable and directly records the expense from your bank or credit card account.
Paying Bills
The "Pay Bills" feature is the correct way to record payments for bills you have already entered into the system. This ensures your expenses are not counted twice.
- Go to Vendor Bills.
- Click the Pay Bills button (often near the top).
- You will see a list of all unpaid bills. Select the bills you wish to pay.
- Choose the Payment Date and the Payment Account (the bank or credit card account the money is coming from).
- Save the bill payment record. The system automatically creates the transaction, reduces your cash, and decreases your Accounts Payable balance.
AP Reporting: Who Do You Owe?
The primary AP report is the **AP Aging Summary**, found in the Reports module.
Understanding AP Aging
This report categorizes all your unpaid bills based on how long they have been outstanding, grouped by vendor. It is essential for managing your cash flow and ensuring you pay vendors on time.
- Current: Bills that are not yet due.
- 1-30 Days: Bills that are up to 30 days past their due date.
- 31-60 Days: ...and so on.
Use this report weekly to plan your outgoing payments and maintain healthy relationships with your vendors.