Accounts Receivable vs Accounts Payable Explained

Money flows in, money flows out. But how you manage both decides how steady your cash flow stays.

If your team handles invoices, payments, or financial reports, you’ve already come across two key terms: Accounts Receivable and Accounts Payable. They affect when you get paid, when you pay others, and how well your business keeps moving.

In this blog, we’ll take a closer look at Accounts Receivable vs Accounts Payable, what makes them different, how they work, and why both are important for managing your cash flow.

What is Accounts Receivable?

Accounts Receivable (AR) is the money your customers owe you for products or services you’ve already provided. Instead of getting paid right away, you send them an invoice and wait for the payment. That waiting period becomes your receivable.

Here’s what you should know:

What is Accounts Payable?

Accounts Payable (AP) is the money a business owes to vendors or service providers for goods or services already received. Instead of paying instantly, you’re billed with terms, and that amount becomes your payable.

Here’s what you should know:

How a Transaction Involves Both AR and AP

Every transaction between two businesses has two sides: one side records money to be received (Accounts Receivable), while the other records money to be paid (Accounts Payable). Here’s how it plays out:

Example:

Company A sells software services worth $10,000 to Company B on a 30-day credit.

1: When the Sale Happens

No money is exchanged now.

Company A (Seller):

They haven’t been paid yet but expect the money.

Journal Entry:

Company B (Buyer):

They haven’t paid yet but now owe $10,000.

Journal Entry:

2: After 30 Days, Company B Pays

Now the payment is made.

Company A (Receives Money):

The payment is received, and the receivable is cleared.

Journal Entry:

Company B (Pays Money):

The amount is paid, and the payable is cleared.

Journal Entry:

Accounts Receivable Process

Used to track money expected from customers after a sale.

Step 1: Create Invoice

Step 2: Send Invoice to Customer

Step 3: Monitor for Payment

Step 4: Record the Payment

Accounts Payable Process

Used to track what the business owes to vendors.

Step 1: Receive Vendor Invoice

Step 2: Verify the Invoice

Step 3: Approve for Payment

Step 4: Pay and Record

Accounts Receivable vs Accounts Payable

Tying Accounts Receivable and Accounts Payable Together

Accounts Receivable (AR) and Accounts Payable (AP) might look like separate tasks, but they’re both part of how money moves in and out of a business.

Cash flow depends on both

AR is money coming in. AP is money going out. If you’re slow to collect from customers, it can make it harder to pay your own bills on time.

Timing matters

It helps when the money you expect (AR) comes in before your payments (AP) are due. For example, if most customers pay within 30 days, try to schedule payments to vendors around that time too. It keeps cash flowing smoothly.

Working capital impact

AR adds to what your business owns right now. AP adds to what you owe. Together, they affect how much ready money you have to handle day-to-day costs.

Accrual accounting link

In accrual accounting, both AR and AP are recorded when things happen, not at the time cash is paid or received. This gives a clearer view of your business’s real position during any period.

Frequent AR and AP Mistakes to Watch For

AR Mistakes:

AP Mistakes:

Conclusion

Accounts Receivable and Accounts Payable may seem like basic terms, but they affect more than just numbers. One shows what others owe you, the other tracks what you owe. Knowing how both work helps you stay prepared, avoid surprises, and keep your money moving the right way.

Need help staying on top of both?

You can count on us for both. Use Quick Receivables to manage AR and Quick Payables to keep your AP in check.