What Is Bills Payable: Definition, Examples & How It Works

Efficient vendor payment processes are critical to maintaining operational continuity and supplier trust. Among the core concepts in business accounting is bills payable—a formal, legally enforceable obligation to settle amounts owed to suppliers or creditors by a specified date. 

This article provides a comprehensive overview of bills payable, including their accounting treatment, journal entry examples, comparisons with accounts payable, and the types commonly used in business transactions. It also highlights best practices for managing these obligations more effectively through automation and structured workflows.

What is Bills Payable?

Bills payable refer to written, legally binding promises made by a business to pay a specific amount of money to a creditor or supplier by a designated date. These typically take the form of bills of exchange, which are issued when goods or services are purchased on credit and the buyer formally accepts the terms.

Upon acceptance, the bill becomes a liability for the buyer—indicating a commitment to repay the specified amount by the maturity date. This liability is recognized in the company’s accounting system as a bills payable entry.

Types of Bills Payable

Now that we have understood the difference between bills payable and accounts payable, we need to know more about the various types of bills payable. 

Each type of bills payable is tailored to different business contexts, credit structures, and financing needs. A clear understanding of each type allows finance professionals to make informed decisions when engaging in credit-based transactions:

1. Trade bills

These are the most common type of bills payable and are issued when a business purchases goods or services on credit. The seller draws a bill of exchange that the buyer accepts, agreeing to pay the amount at a specified future date. This method formalizes the credit arrangement and reduces ambiguity around payment terms.

2. Accommodation bills

Unlike trade bills, accommodation bills are not backed by a genuine trade transaction. Instead, they are drawn and accepted to help another party—such as a business partner or affiliate—obtain short-term financing. The party accepting the bill does so as a favor or financial accommodation, not in exchange for goods or services.

3. Time bills

Time bills specify a fixed date or a certain number of days after acceptance for payment to be made (e.g., 30, 60, or 90 days). These provide a clear payment window and are commonly used in structured credit agreements where predictability of cash flow is important for both the buyer and the seller.

4. Demand bills

Demand bills are payable immediately upon presentation to the drawee. Because of their immediacy, they are typically used in situations that require urgent repayment or involve very short credit cycles. They are less common in long-term B2B arrangements but may appear in high-trust or expedited financial transactions.

Key Characteristics of Bills Payable

After knowing how bills payable affect the balance sheet, it is natural to ensure that we understand their key characteristics. Understanding their core attributes helps clarify their function in financial accounting and distinguishes them from other business obligations. 

Below are the primary characteristics, along with concise explanations of bills payable:

1. Not an expense

Although bills payable arise from transactions that may involve costs (like purchasing inventory or services), the bill itself represents a commitment to pay—not the actual expenditure. The expense or asset is recorded separately at the time of the transaction.

2. Not income

Bills payable indicate an amount owed, not a revenue-generating activity. They do not bring in cash or value; rather, they require the outflow of funds upon settlement.

3. Classified as a liability

On the balance sheet, bills payable appear under current liabilities. They reflect financial obligations that need to be fulfilled within a short period, typically within one fiscal year. They are grouped alongside other short-term liabilities such as accounts payable and accrued expenses.

By understanding bills payable and how they are handled in the books, you can better manage working capital, maintain supplier trust, and ensure financial accuracy.

Bills Payable Example

Let’s say company ABC buys $20,000 worth of raw materials from a supplier on credit. The supplier issues a bill of exchange with a 90-day payment period. Company ABC accepts this bill.

1. Journal entry at acceptance

Account	Debit	Credit
Raw Materials (Asset)	$20,000	–
Bills Payable (Liability)	–	$20,000

2. Journal entry at payment

Account	Debit	Credit
Bills Payable	$20,000	–
Bank	–	$20,000

Benefits Of Using Bills Payable

Bills payable—including formal instruments like bills of exchange—can be a valuable tool in B2B transactions, especially for companies looking to improve working capital management while maintaining supplier relationships. When used strategically, they help finance teams align outgoing payments with broader financial planning.

Here are the key benefits of using bills payable:

1. Improved cash flow control

Bills payable allow companies to delay payment without compromising supplier relationships. This gives finance teams flexibility to align outflows with revenue cycles and maintain better liquidity throughout the month or quarter.

2. Predictable, structured liabilities

Because bills payable come with fixed maturity dates and clearly defined terms, they provide visibility into upcoming obligations. This predictability makes it easier to manage short-term liabilities and avoid surprise outflows.

3. Stronger supplier relationships

Formalizing payment commitments through bills payable signals professionalism and reliability to vendors. This can build supplier trust, lead to better negotiation outcomes, and support longer-term partnership development.

4. Legal and financial accountability

Unlike informal payment agreements, bills payable are legally enforceable. They reduce ambiguity and offer a layer of protection against disputes, which is especially important in regulated industries or high-value contracts.

5. Potential credit profile improvement

Timely settlement of bills payable can help establish a positive payment history. This may strengthen a business’s creditworthiness with suppliers, financial institutions, and trade partners — opening doors to better terms and access to future credit.

Challenges Of Using Bills Payable

Despite their advantages, bills payable have certain limitations, especially if they are not managed with the right systems and controls. Poor oversight can lead to missed deadlines, payment disputes, and operational inefficiencies.

Below are the most common challenges organizations face:

1. Risk of missed or late payments

If bills payable are tracked manually or across spreadsheets, due dates can easily be overlooked. This increases the risk of late fees, legal penalties, and strained vendor relationships — especially in high-volume environments.

2. Administrative complexity

Managing multiple bills with varying terms, suppliers, and amounts requires significant coordination. Without automation, the process can become time-consuming and error-prone for AP teams.

3. Recording and classification errors

Mistakes in entering due dates, amounts, or supplier details can cause reconciliation issues or misstatements in financial reporting — impacting audits, compliance, and cash flow planning.

4. Limited flexibility after acceptance

Once a bill is accepted and committed to, the payment terms are fixed. This can be a challenge if the business faces unexpected cash flow constraints and needs to renegotiate — which usually requires mutual consent.

5. Not universally accepted by all vendors

Some suppliers — especially smaller or informal vendors — may not work with bills of exchange or structured payment instruments. This limits applicability, particularly in less formal procurement relationships.

How To Manage Bills Payable Efficiently: Best Practices

Managing bills payable efficiently is essential for maintaining vendor trust, optimizing cash flow, and staying audit-ready. A structured, well-maintained process helps organizations avoid missed payments, reduce risk, and ensure financial clarity across departments. Here are key best practices that finance and AP teams can adopt:

1. Automate record-keeping for accuracy and consistency

Use AP automation tools or ERP-integrated systems to capture bills, match them with purchase orders, and flag discrepancies in real time. This reduces data entry errors, ensures up-to-date records, and simplifies audits or reconciliations.

2. Track payment due dates with system-based alerts

Instead of relying on manual tracking or spreadsheets, set up automated reminders and workflows within your payables system. This helps avoid missed deadlines, late fees, and strained supplier relationships — while protecting your credit reputation.

3. Reconcile statements regularly to catch issues early

Compare your internal records with supplier statements on a recurring basis. This helps detect mismatches, avoid duplicate payments, and resolve potential disputes before they escalate.

4. Distinguish bills payable from other liabilities

Where applicable, use separate accounts or classifications for bills payable (such as promissory notes or formal instruments) to ensure accurate reporting. This improves clarity in your general ledger and supports more detailed financial analysis.

5. Capitalize on early payment discounts

Identify suppliers that offer early payment incentives and align disbursements accordingly. This can lead to direct cost savings while also strengthening vendor relationships through consistent, timely payments.

Why Is Efficient Management Of Bills Payable Important?

Managing bills payable may seem like a routine task, but its impact reaches far beyond processing invoices. For finance and AP leaders, how well bills are managed can influence everything from vendor trust and cash flow visibility to payment cycle efficiency and financial reputation. Here’s why getting it right truly matters:

1. Protects supplier relationships and payment reputation

Late or missed payments don’t just result in penalties — they can damage long-standing supplier relationships. Vendors notice when payments are consistent and on time, and they’re more likely to extend flexible terms or prioritize your business in return. On the other hand, frequent delays can trigger stricter payment conditions or upfront requirements that strain your cash flow.

2. Improves financial visibility and planning

When you have a clear view of outstanding bills, due dates, and upcoming liabilities, it becomes easier to forecast cash flow accurately. This visibility allows you to plan disbursements in alignment with expected revenue, helping you maintain liquidity without overextending your budget or disrupting operations.

3. Enables smarter working capital decisions

Efficient bills payable processes help you time your payments more strategically. Whether it’s deferring payments where possible or accelerating them to capture early payment discounts, visibility and control over bills give your team the flexibility to optimize cash on hand — without sacrificing supplier confidence.

4. Reduces manual risk and administrative burden

When bills are tracked using spreadsheets or email threads, deadlines can be missed and data can be easily misclassified. A structured bills payable process — often powered by automation — minimizes the risk of these errors, freeing up time for higher-value tasks like supplier analysis and payment strategy.

5. Supports measurable accounts payable KPIs

Well-managed bills payable directly contribute to key AP goals. By improving payment predictability and reducing manual effort, teams can track and improve metrics like Days Payable Outstanding (DPO), capture more early payment discounts, and reduce invoice exception rates — all of which strengthen your finance operations over time.

Is Bills Payable a Debit or Credit?

From an accounting perspective, bills payable are recorded as a credit entry at the time of acceptance. This reflects the increase in the company’s liabilities. The corresponding debit entry is made to either an asset account (such as Inventory) or an expense account (such as Services Received), depending on the nature of the transaction.

Example:
A company receives goods on credit and accepts a bill of exchange.

• Debit: Inventory
• Credit: Bills Payable

This journal entry formalizes the liability and ensures it is tracked and settled according to the agreed terms.

Bills Payable Vs. Accounts Payable: Key Differences

It’s equally important to distinguish bills payable from a closely related concept—accounts payable—to ensure accurate financial reporting and effective liability management. While both bills payable and accounts payable represent amounts owed to vendors, they differ in structure, enforceability, and use cases. Understanding these differences can improve a company’s cash flow management and compliance posture.

Criteria	Bills Payable	Accounts Payable
Legal Formality	Formal, governed by a signed bill of exchange	Informal, based on invoices or purchase agreements
Enforceability	Legally enforceable instrument, often negotiable	Enforceable, but typically less formal in legal structure
Use Case	Used for large or contract-based credit transactions	Used for routine, day-to-day purchases
Presentation	Separate line item under current liabilities	Also under current liabilities, often grouped
Payment Terms	Clearly defined in the bill (e.g., 90 days from acceptance)	Agreed via invoice terms, less standardized

Bills Payable Vs. Bills Receivable: Key Differences

Bills payable and bills receivable are two sides of a financial transaction involving a bill of exchange. While both are legally binding instruments that specify payment terms and due dates, they serve opposite functions in your accounting system.

• Bills receivable refer to amounts your business expects to receive from customers — recorded as an asset.
• Bills payable represent the amounts your business is obligated to pay to suppliers or creditors — recorded as a liability.
  

Aspect	Bills Receivable	Bills Payable
Accounting Role	Asset	Liability
Cash Direction	Money incoming to your business	Money going out from your business
Initiated By	Customer signs the bill acknowledging payment due	Your business signs the bill agreeing to pay
Book Entry	Recorded as a debit in the company’s ledger	Recorded as a credit in the company’s ledger

How HighRadius Can Help?

Efficiently managing bills payable requires more than spreadsheets and manual tracking — it requires automation, visibility, and seamless collaboration with vendors. HighRadius offers an integrated solution that helps finance and AP teams streamline bills payable operations, reduce risk, and improve control over payment workflows.

Here’s how HighRadius supports smarter, scalable bills payable management:

1. Improve invoice accuracy and reduce entry errors

HighRadius automatically captures invoice data using OCR and AI-based extraction, ensuring that bills are correctly recorded and classified the first time. This minimizes manual keying and helps prevent downstream errors in payment processing or reporting.

2. Never miss a due date with automated reminders and approval workflows

With HighRadius, bills are routed for approval based on pre-configured rules — such as amount thresholds, business units, or invoice type. Upcoming due dates are tracked through the system, with built-in alerts to help AP teams prioritize and release payments on time.

3. Accelerate reconciliation with AI-driven statement matching

The system parses supplier statement emails and automatically matches line items against open bills in your ERP. Any mismatches, duplicates, or missing invoices are flagged immediately — helping you maintain accurate records and close books faster.

4. Give suppliers real-time visibility to reduce back-and-forth

Suppliers can log into a self-service portal to upload invoices, check payment status, and respond to discrepancies. This reduces the volume of emails to AP teams, improves supplier satisfaction, and ensures better alignment throughout the payment cycle.

5. Support compliance and audit readiness with centralized documentation

HighRadius maintains an audit trail for every bill, from submission to approval to payment. With all supporting documentation stored in one place, audit prep is faster, reporting is more accurate, and your finance team remains always ready for internal or external reviews.

If your AP team is dealing with late payments, reconciliation delays, or vendor communication overload — or if you’re looking to automate invoice tracking, improve compliance, and gain control over payables — HighRadius offers a purpose-built solution. Our platform transforms bills payable from a manual chore into a streamlined, automated workflow that delivers accuracy, efficiency, and better supplier alignment at scale.

Ready to simplify your bills payable process? Schedule a Demo and see how HighRadius can help you stay ahead of every payment.

FAQs

1. What account do bills payable come from?

Bills payable are recorded under the liabilities section of a company’s balance sheet, specifically in a ledger account named “Bills Payable Account.” When a business accepts a bill of exchange or agrees to pay a vendor at a future date, it creates a liability.

Example Entry:

• Debit: Purchase or expense account (e.g., Inventory)
• Credit: Bills Payable (Liability)

This account helps businesses keep track of amounts they legally owe through formal credit arrangements.

2. Is bills payable a credit or debit?

Bills payable is recorded as a credit when the liability is created. This is because liabilities have a credit balance in accounting. When the bill is eventually paid, the entry is reversed:

At the time of purchase:

• Debit: Asset/Expense
• Credit: Bills Payable

At the time of payment:

• Debit: Bills Payable
• Credit: Cash/Bank

This approach aligns with the double-entry system of bookkeeping.

3. Are bills payable an expense or income?

Neither. Bills payable are not expenses or income—they are liabilities. When a business incurs an expense (like purchasing goods), the cost is recorded in an expense or asset account. However, the obligation to pay that cost at a later date becomes the bills payable.

Think of it this way:

• The expense is recorded when the goods/services are received.
• The bill payable is the mechanism through which you defer the payment.

4. How do you record bills payable?

Recording bills payable involves a journal entry once the business agrees to pay a vendor on a specific future date. Here’s how you do it:

When goods/services are received and the bill is accepted:

• Debit: Inventory / Expense Account (what you received)
• Credit: Bills Payable Account (what you owe)

When payment is made:

• Debit: Bills Payable
• Credit: Cash/Bank

This helps ensure that liabilities and cash flow are accurately reflected in your financial statements.

5. How are bills payable reported in the balance sheet?

Bills payable appear under “Current Liabilities” on the company’s balance sheet. This classification is used because most bills payable are due within a year of issuance.

A typical Current Liabilities section might look like:

• Accounts Payable
• Bills Payable
• Accrued Expenses
• Short-Term Loans

This reporting helps stakeholders understand the company’s upcoming financial obligations.

6. How is bills payable calculated?

To calculate the total bills payable, sum all the outstanding bills of exchange that the company has accepted and has not yet paid.

Formula:

Bills Payable = Sum of All Accepted, Unpaid Bills of Exchange

This figure will fluctuate based on new bills accepted and payments made. Accurate tracking is critical to managing working capital and avoiding cash flow issues. Many companies use accounts payable automation tools to keep a real-time ledger of outstanding bills payable.