Everything You Should Know About Accounts Payable

Every childcare business has money going in and money going out. Accounts payable — the money your center owes to vendors, suppliers, contractors, and service providers — sits squarely on the “going out” side, and how well you manage it directly affects your cash position, your vendor relationships, and your credit standing. Whether a single bookkeeper or a full department handles it, accounts payable is one of the most important systems in your financial operation. Here is what every childcare owner should know.

What Is Accounts Payable?

Accounts payable is a current liability — money your business owes to vendors or suppliers and expects to pay within the near term, typically 30 days or less. According to Less Accounting, how efficient your accounts payable system is directly affects your company’s reputation and financial stability. As a result, accounts payable is sometimes described as short-term debt — bills you have committed to pay but have not yet paid.

It is also important to understand how accounts payable differs from accounts receivable. Accounts receivable is the money customers (in childcare, your families and subsidy agencies) owe you. Accounts payable is the money you owe vendors. For the receivables side of the equation, see our companion guide on accounts receivable best practices.

The accounts payable process itself follows a predictable cycle. First, bills and invoices arrive from vendors. Next, you record each one in your accounting system — whether that is cloud software, a desktop ledger, or both. Then, you schedule and issue payment by check, ACH, or card. Finally, you update the ledger so every transaction reconciles. Each step matters; skipping any of them creates problems that compound over time.

What Are the Duties in Accounts Payable?

Several distinct duties sit inside the accounts payable function. In a small childcare center, one person — often the owner or office manager — handles all of them. In a larger multi-site operation, an entire bookkeeping team may divide the work. However, regardless of who owns the function, the core jobs are the same.

Vendor Payments

Vendor payments cover everything from curriculum supplier invoices to cleaning service bills, food program purchases, utilities, rent, and software subscriptions. As a result, you need a system for pre-approving purchases, verifying delivery, paying on time, and recording every transaction immediately. Deloitte notes that strong accounts payable departments also handle vendor selection and negotiation — pushing for better pricing, extended payment terms, and early-payment discounts.

Employee Reimbursements

Employee reimbursements run through accounts payable too. For example, a teacher who buys classroom supplies out of pocket needs to submit a receipt, get the expense verified, and then receive payment. As a result, you should keep these transactions in a separate sub-ledger so you can distinguish reimbursements from regular vendor payments — and so you can track which classrooms or departments are generating which expenses.

Travel Expenses

Travel expenses — director conferences, owner travel, off-site training — typically flow through accounts payable as well. A small center may roll travel into the general employee reimbursement category. However, a multi-site operation usually benefits from a dedicated travel sub-ledger so the spending stays visible and budgeted.

Internal Payments

Finally, internal payments — petty cash, small office supply runs, classroom snacks, the occasional pizza for a staff appreciation lunch — also belong in accounts payable. These small, irregular payments are easy to lose track of, which makes them a common source of bookkeeping errors. As a result, they need the same documentation discipline as any large invoice.

Who Should Handle Accounts Payable?

Exact qualifications depend on the size and complexity of your childcare business. For a small single-site center, a high school diploma plus on-the-job training is often enough. For a multi-site company, however, most owners look for a post-secondary degree in accounting, finance, or business. Discover Accounting lists several general qualifications to look for in anyone you put in this role.

• Math Skills. Strong arithmetic and problem-solving are non-negotiable. In addition, the person needs to be comfortable working with high-volume data without losing accuracy.
• Computer Skills. Proficiency with cloud accounting software, spreadsheets, electronic invoices, and bank feeds is essential. For a deeper look at what to build into your operation, see our guide to consolidating your childcare business tech stack. For payroll-adjacent A/P workflows (contractor 1099 payments, for example), we recommend Gusto.
• Detail-Oriented. Even a small discrepancy can create disastrous downstream effects. As a result, the person handling accounts payable needs to keep numbers, vendor records, vouchers, invoices, and supporting paperwork meticulously organized.
• Good Character. Anyone working in accounts payable has access to your bank accounts and vendor list. Run a background check on every hire, build in confidentiality expectations, and put fraud controls in place from day one.

Accounts Payable Best Practices

Managing accounts payable is full of moving parts, and keeping everything running smoothly is not easy. However, a handful of well-established practices consistently make the difference between a tight A/P operation and a chaotic one.

Simplify the Process

First, keep the process as simple as possible. Limiting check runs to twice a month is enough for most childcare centers — even large multi-site operations. As a result, you batch invoice review, approval, payment, and posting into predictable cycles instead of one-off scrambles. Fewer one-off payments means fewer errors, fewer missed bills, and dramatically less stress.

Make the Most of Technology

Modern cloud accounting platforms automate most of the accounts payable workflow — bill capture, approval routing, ACH payments, and ledger posting. However, do not follow the crowd blindly on software choice. Pick the tools that actually fit how your center operates, train your team regularly, and revisit the stack annually as your business grows. For more on this side of things, see our guide to small business accounting basics.

Review Regularly

GrowthForce states that a regular review of accounts payable is essential. This includes analytics, advanced reporting, aging reports for outstanding bills, and reconciliation against bank activity. As a result, reviewing your A/P monthly (at minimum) improves cash flow, reduces compliance risk, and keeps every payment and invoice accounted for. Plug your A/P aging and days payable outstanding metrics into your financial dashboard so you can see trends at a glance.

Reduce Fraud

The larger your childcare company gets, the higher the fraud risk. Meanwhile, even small centers are vulnerable. Watch for “dummy vendors” — a dishonest employee creates a fake vendor and bills the company for services never delivered. Due recommends building a clear “separation of powers” so no single person can both set up a new vendor and approve payments to that vendor. For example, the office manager can enter new vendors while the owner approves payments — or vice versa. The point is that two sets of eyes touch every dollar before it leaves the account.

Start Early, but Not Too Early

Finally, do not let bills age into late territory. Late fees are wasted money, and a reputation for paying late will close doors with vendors faster than almost anything else. However, paying too early is also a mistake — especially for small businesses where cash is unpredictable. As a result, the ideal accounts payable cadence pays vendors right at their due date, captures any early-payment discounts where they make sense, and keeps cash on hand for the surprises childcare always delivers.

Putting It All Together

A strong accounts payable function is one of the quiet drivers of a healthy childcare business. As a result, it deserves the same attention you give to enrollment, payroll, and tuition collection. Whether one person owns it or an entire bookkeeping team divides the work, the principles are the same: simplify the process, lean on the right technology, review regularly, build fraud controls, and pay on time — but not too early.

If you would like help designing an accounts payable workflow that fits your childcare center, Honest Buck Accounting works exclusively with childcare businesses and can build the system around the way your team actually operates. Start with our new client questionnaire and we’ll take it from there.