Understanding Accounts Payable and How to Set It Up in QuickBooks Online

Managing accounts payable (AP) is a crucial part of running any business. The accounts payable process helps ensure that your business pays its vendors, suppliers, and creditors on time, while also keeping your financial records accurate and up to date. If you don’t manage AP efficiently, you can run into cash flow issues, late fees, and damaged vendor relationships.

In this article, we’ll walk you through the accounts payable process and how to set it up effectively in QuickBooks Online (QBO).

What Is Accounts Payable?

Accounts payable refers to the money a business owes to its vendors, suppliers, or creditors for goods or services that have been received but not yet paid for. When a business receives an invoice from a supplier, the amount owed is recorded as an account payable. These balances need to be paid within an agreed-upon period, usually within 30, 60, or 90 days.

Managing accounts payable efficiently ensures that:

• Your bills are paid on time.

• You can maintain good relationships with vendors.

• You can accurately track your business’s short-term liabilities.

The accounts payable process involves several key steps, including receiving and entering bills, organizing and tracking unpaid bills, making payments, and keeping records for future reference.

Key Steps in the Accounts Payable Process

1. Receiving and Entering Bills
   The process starts when you receive an invoice or bill from a vendor or supplier. This bill outlines the goods or services provided, along with the amount owed and payment terms (e.g., due in 30 days). Once you receive the bill, it needs to be entered into your bookkeeping system as an account payable.

2. Organizing and Tracking Unpaid Bills
   Once bills are entered into your system, they must be tracked to ensure that payments are made on time. This involves keeping a record of when the bill was received, the amount owed, and the due date. Proper tracking helps you avoid missed or late payments, which can result in late fees and damage vendor relationships.

3. Making Payments
   When the payment due date approaches, you need to review your outstanding accounts payable, confirm that the invoice is accurate, and make the payment to the vendor. Depending on the payment terms, you might pay via check, credit card, or electronic funds transfer (EFT).

4. Recording Payments
   After a payment is made, it should be recorded in your bookkeeping system. This helps ensure that your accounts payable balance reflects the payments made, keeping your financial records accurate.

How to Set Up and Manage Accounts Payable in QuickBooks Online

Setting up your accounts payable process in QuickBooks Online (QBO) is simple and can save you a lot of time by automating bill tracking and payments. Follow these steps to get started:

Step 1: Enable the Accounts Payable Feature in QBO

To manage accounts payable, ensure you have the Plus or Advanced version of QuickBooks Online, as the AP feature is only available in these versions.

1. Log in to your QuickBooks Online account.

2. Navigate to the “Settings” gear icon at the top right.

3. Click on “Account and Settings.”

4. Go to the “Expenses” tab and ensure that the “Show Items Table on Expense and Purchase Forms” and “Track Expenses and Items by Vendor” options are enabled. This will allow you to enter and track bills from vendors.

5. Save your settings after making these changes.

Step 2: Add Vendors in QBO

To start entering bills, you’ll need to add the vendors you work with. Vendors include any company or individual that your business owes money to for goods or services.

1. Go to the “Expenses” menu on the left sidebar.

2. Click “Vendors.”

3. In the top right corner, click “New Vendor.”

4. Fill in the vendor’s details, such as name, address, phone number, and payment terms (e.g., Net 30, meaning payment is due 30 days after the invoice date).

5. Click “Save.”

Once your vendors are set up, you’re ready to enter bills.

Step 3: Enter Bills in QBO

After receiving a bill from a vendor, you’ll need to enter it into QuickBooks to keep track of the payment due.

1. Go to the “+ New” button on the left sidebar and select “Bill.”

2. Choose the vendor from the dropdown menu.

3. Enter the bill date, due date, and payment terms based on the vendor’s invoice.

4. Fill out the details of the bill, including the expense category (e.g., utilities, office supplies) and the amount.

5. Attach a copy of the invoice to the bill for reference by uploading it from your computer.

6. Once everything is entered, click “Save and Close” or “Save and New” if you have more bills to enter.

By entering bills this way, you’ll be able to track outstanding payables and view all upcoming payments.

Step 4: Track Unpaid Bills in QBO

After entering bills into QuickBooks, you can easily track and manage them to ensure timely payments.

1. Go to the “Expenses” menu and click “Vendors.”

2. Here, you’ll see a list of all your vendors and the amount you owe each one. You can also view the Accounts Payable Aging Summary report, which shows how much you owe and when those payments are due.

3. From this page, you can also sort bills by due date to prioritize upcoming payments and avoid late fees.

By reviewing this regularly, you can ensure you’re staying on top of your accounts payable.

Step 5: Pay Bills in QBO

When it’s time to pay a vendor, you can do so directly through QuickBooks. Paying through QBO ensures the payment is recorded, and the accounts payable balance is updated automatically.

1. Go to the “+ New” button and click “Pay Bills.”

2. Select the vendor whose bill you want to pay.

3. Enter the amount you’re paying and choose the payment method (e.g., check, credit card, bank transfer).

4. If paying by check, you can print it directly from QuickBooks. If using another method, ensure that the correct payment details are recorded.

5. After reviewing the payment, click “Save and Close.”

QuickBooks will automatically update your accounts payable to reflect the payment made, ensuring that your balance sheet remains accurate.

Step 6: Run Accounts Payable Reports

To monitor your accounts payable effectively, you can run reports in QuickBooks Online that show you the status of all your bills and payments.

1. Go to the “Reports” menu on the left sidebar.

2. In the search bar, type “Accounts Payable” and select the Accounts Payable Aging Summary report.

3. This report will show all outstanding bills categorized by their due dates, helping you prioritize payments and manage cash flow.

You can customize the report to show specific vendors, time periods, or bill amounts.

Conclusion

Setting up and managing accounts payable in QuickBooks Online is a straightforward process that ensures you stay on top of your business’s liabilities. By properly entering and tracking bills, organizing your payments, and leveraging QBO’s automated features, you’ll be able to maintain healthy relationships with your vendors, avoid late fees, and have an accurate picture of your short-term obligations.

With a solid accounts payable system in place, your business will be better equipped to manage cash flow and make informed financial decisions. If you need help setting up or managing your accounts payable in QuickBooks, consider reaching out to a bookkeeping professional for guidance!