What Is Accounts Payable?
By BRIX Editorial Team · Updated
Accounts payable (A/P) is the money your business owes suppliers, subcontractors and vendors for goods and services you've received but haven't paid for yet. It is a current liability on the balance sheet. For a contractor, A/P is mostly supply-house accounts, equipment rentals and subcontractor bills due on 30-day terms.
Key takeaways
- A/P is what you owe; accounts receivable is what you're owed. A healthy shop collects A/R faster than it has to pay A/P.
- Enter supplier bills when they arrive, not when you pay them, or you'll never know what you really owe.
- Days payable outstanding (DPO) = A/P ÷ cost of goods sold × days in the period.
- A 2/10 net 30 early-pay discount is worth roughly 37% a year. Take it if you have the cash.
- Code every materials and sub bill to a job, or your job costing will be wrong.
How does accounts payable work?
Accounts payable starts when a supplier gives you something on credit. You pick up $3,800 of copper, fittings and a tankless unit at the supply house on your trade account. The supplier sends an invoice due in 30 days. In your books that invoice becomes a bill: A/P goes up $3,800, and the cost goes to the job. When you pay 30 days later, A/P and cash both go down by $3,800.
Trade credit is one of the cheapest ways to fund a job. If the customer pays you in 20 days and you pay the supply house in 30, the supplier has effectively financed your materials. If the customer pays in 60 and the supplier wants payment in 30, you're financing the job yourself. That gap is the core of cash flow for contractors.
What goes into accounts payable for a contractor?
- Supply-house and lumber-yard accounts: materials, equipment and parts bought on terms.
- Subcontractor bills: electricians, drywall crews, roofers or excavators you hire on a job.
- Equipment rentals: lifts, excavators, dumpsters and portable toilets billed weekly or monthly.
- Services: fuel cards, insurance installments, software subscriptions, disposal fees.
- Not A/P: payroll (tracked as wages and payroll liabilities), loans (notes payable) and credit card balances (a separate credit card liability account).
How do you calculate days payable outstanding?
DPO = (Accounts payable ÷ Cost of goods sold) × Days in period
- Accounts payable
- unpaid supplier and sub bills at the end of the period
- Cost of goods sold
- direct job costs for the same period: materials, subs, direct labor. See cost of goods sold.
- Days in period
- 365 for a year, about 91 for a quarter
Should you take early payment discounts?
Usually yes, if you have the cash. Terms like "2/10 net 30" mean you can take 2% off if you pay within 10 days, or pay the full amount by day 30. Skipping the discount is like borrowing the money for 20 extra days at a steep price.
Cost = [Discount % ÷ (100% − Discount %)] × [365 ÷ (Full term days − Discount days)]
Accounts payable by trade
| Trade | Biggest A/P items | Watch out for |
|---|---|---|
| HVAC | Equipment distributors (condensers, furnaces, mini-splits), refrigerant, sheet metal | Big equipment bills landing before the install is paid; warranty credits not applied |
| Plumbing | Supply-house accounts, water heaters, fixtures | Counter tickets for many jobs on one statement; returns not credited |
| Roofing | Shingle and underlayment deliveries, dumpsters, subcontracted crews | Materials delivered for storm jobs before insurance pays |
| Electrical | Wire, gear and panels from the electrical distributor; lift rentals | Copper price swings between quote and purchase |
| General contractor | Subcontractor pay applications, lumber, rentals | Paying subs before the owner pays you; missing lien waivers |
| Landscaping | Nursery stock, mulch and stone, fuel, equipment repairs | Spring inventory bought months before summer revenue |
| Cleaning | Supplies, uniforms, equipment leases | Many small recurring bills that nobody reviews |
When do you have to pay subcontractors?
Your subcontract sets the timing, and state law may add rules on top. Many subcontracts use "pay-when-paid" or "pay-if-paid" clauses that tie your payment to the sub to the owner paying you, and states treat those clauses differently. Some states also have prompt payment acts with deadlines and interest for late payment on private or public jobs. Check your state's rules and your contract language.
On federal construction contracts, the Prompt Payment clause (FAR 52.232-27) requires the prime contractor's subcontracts to provide for payment to subs within 7 days of the prime receiving payment from the government. Before you pay a sub, collect a W-9 and a lien waiver; see 1099s for subcontractors and lien waivers.
Accounts payable vs. accounts receivable
| Accounts payable | Accounts receivable | |
|---|---|---|
| Who owes whom | You owe suppliers and subs | Customers owe you |
| Balance sheet | Current liability | Current asset |
| Created by | A supplier bill | Your invoice |
| Speed metric | Days payable outstanding (DPO) | Days sales outstanding (DSO) |
| Goal | Pay on time, not early (unless discounted) | Collect as fast as possible |
How do you manage accounts payable in QuickBooks?
Enter each supplier invoice as a bill with its due date, the job (customer or project) and the right expense or cost of goods sold account. Pay it later with the pay-bills workflow so the payment matches the bill. If you pay at the counter with a card, record it as a credit card expense instead of a bill, but still assign it to the job. A clean chart of accounts with separate materials, subcontractor and equipment rental cost accounts makes the profit and loss statement readable. Our QuickBooks chart of accounts for contractors template gives you a starting list.
Common accounts payable mistakes
- Paying straight from the bank without entering bills. You lose track of what you owe and can't see A/P aging.
- Double-counting. The supply house's invoice gets entered as a bill and the card payment gets entered as an expense. Match payments to bills.
- Not assigning bills to jobs. Materials end up as general overhead and every job looks more profitable than it was.
- Paying subs without paperwork. No W-9, certificate of insurance or lien waiver on file before payment creates tax and lien headaches later.
- Paying everything early. Unless there's a discount, paying a net 30 bill on day 3 just shrinks your cash cushion.
- Ignoring supplier statements. Reconcile each supplier's monthly statement to your A/P to catch missing credits and duplicate charges.
Frequently asked questions
Is accounts payable an expense?
No. Accounts payable is a liability: the amount you still owe. The expense (or job cost) is recorded when you receive the goods or the bill, on the accrual method. Paying the bill later reduces A/P and cash but doesn't create a second expense.
Is accounts payable a debit or a credit?
A/P normally carries a credit balance. Entering a bill credits A/P and debits an expense or job cost account. Paying the bill debits A/P and credits cash.
What is a good days payable outstanding for a contractor?
Roughly matching your supplier terms is healthy. If most suppliers give net 30, a DPO near 30 days means you're paying on time. A DPO well above your terms usually means you're stretching suppliers, which can cost you credit limits and pricing.
Should subcontractor bills go in accounts payable?
Yes. Enter each sub's invoice or pay application as a bill, assigned to the job, so it shows up in A/P and in job costs. Keep the sub's W-9, insurance certificate and lien waivers with the bill.
Do credit card purchases count as accounts payable?
Not usually. Card purchases are owed to the card company, so they're tracked in a credit card liability account. You still need to assign each purchase to the right job and cost account.
Do I need accounts payable if I use cash-basis accounting?
Cash-basis books record expenses when paid, so A/P doesn't hit your P&L. You should still enter bills to track what you owe and when it's due. QuickBooks can show reports on either basis.
Related
- What Is Accounts Receivable?Accounts receivable explained for contractors: how A/R works, the aging report, turnover formula, worked examples by trade, and how to collect faster.
- Cash Flow for Contractors: Why Profitable Shops Run Out of MoneyWhy profitable contractors run out of cash, how to forecast 13 weeks ahead, runway math with worked examples, seasonal patterns by trade, and fixes.
- What Is Cost of Goods Sold (COGS) for a Contractor?What counts as cost of goods sold for a contractor, the COGS formula, a worked P&L example, COGS vs. overhead by trade, and IRS inventory rules.
- What Is Job Costing?Job costing tracks what each job really cost vs. the estimate. What to track, a sample job cost report with variances, and a simple system for small crews.
- Do I Need to Send a 1099 to a Subcontractor?When a contractor must send a subcontractor a 1099-NEC: the new $2,000 threshold for 2026 payments, who's exempt, due dates, and what to collect first.
- What Is a Lien Waiver?What a lien waiver is, conditional vs. unconditional and progress vs. final waivers, and which states require statutory forms, with sources.
- What Is a Chart of Accounts?How a chart of accounts works for contractors: the five account types, a sample numbered list, job cost accounts, QuickBooks setup and mistakes to avoid.
- Bookkeeping for contractors that keeps your books tax-ready all yearContractor bookkeeping that stays current: categorized expenses, 1099 subcontractor tracking, sales tax and quarterly tax reminders, synced to QuickBooks.
- QuickBooks for contractors: the right version, real job costing and a sync that keeps the books matched to the jobsQuickBooks for contractors: Online vs Desktop, job costing with projects and classes, sync pitfalls, and how BRIX keeps QuickBooks matched to your jobs.
- Contractor invoicing software that sends the invoice and chases the moneyTurn finished jobs into invoices the same day, send polite automatic reminders on unpaid ones, and sync invoices and payments to QuickBooks.
Sources
- Acquisition.gov — FAR 52.232-27, Prompt Payment for Construction Contracts (checked October 12, 2026)
- IRS — About Form W-9, Request for Taxpayer Identification Number and Certification (checked October 12, 2026)