Notes payable vs. accounts payable: 2025 procurement guide

Notes payable and accounts payable both represent major liabilities for businesses. They influence cost optimization, purchasing compliance, and cash flow predictability, making them critical factors in the overall procurement process.

However, each type of account has its own strategic advantages, from freeing up short-term capital and optimizing supplier relationships to building your organization’s credit standing.

To use each account type in a way that best meets your business needs, you first need to understand the differences between notes payable vs. accounts payable, their strategic use cases, and how they fit into the procure-to-pay process.

Notes payable vs. accounts payable overview

Notes payable and accounts payable both represent liabilities on a company’s balance sheet. These liability accounts track how much your organization owes for goods and services you’ve received but haven’t yet paid for. Together, they reflect your company’s overall debt to suppliers, banks, and other financial institutions. 

The main difference between the two is that notes payable generally represent long-term liabilities, typically associated with loans or financing for large purchases, while accounts payable refer to short-term liabilities. These smaller purchases often require payment within 30 to 60 days.

Understanding these liabilities is crucial for optimizing your procurement cycles and financial planning. This knowledge helps make sure your organization can effectively manage its financial obligations, including the expenses it incurs through procurement.

What are notes payable (NP)?

Notes payable are formal agreements where your organization commits to repaying a borrowed amount over a defined period, typically with interest. These long-term liabilities are documented with a written promise (also called a promissory note) that outlines the specific terms of the loan, the interest rate (fixed or variable), and the repayment schedule.

Unlike accounts payable, notes payable may involve collateral, which is an asset your organization pledges to a lender in the case that you can’t pay them back. 

In procurement, you might use notes payable to support capital expenditures (CapEx), such as purchasing expensive equipment, funding infrastructure upgrades, or securing contract-based investments that require up-front capital.

What are accounts payable (AP)?

Accounts payable are the short-term debts your organization owes to suppliers and creditors that have provided goods or services but haven’t yet been paid. These accounts typically cover day-to-day purchasing, including: 

• Utility bills

• Subscription services

• Supplier invoices

• Maintenance costs

• Payments to contractors

You’re expected to settle most accounts payable within standard invoicing cycles, such as within 30 days. In some cases, contractors may allow you to make monthly payments over time. Splitting your purchase into regular installments gives you more flexibility in how you manage your cash flow. Making timely payments is also crucial for maintaining vendor relationships as part of an optimized procurement process.

Key differences: Notes payable vs. accounts payable

While both accounts represent money your organization owes, notes payable and accounts payable are distinct types of liabilities with different roles in financial and procurement strategy. Their key differences include:

• Maturity timeline: Accounts payable typically have a due date within 30 to 60 days, while notes payable may take months or years to reconcile since they often represent larger purchases.

• Documentation: Notes payable require a formal written agreement that’s legally binding, while accounts payable are based on purchase orders and invoices.

• Interest charges: Accounts payable don’t accrue interest over the repayment period, but notes payable typically do.

• Impact on financial ratios: Accounts payable significantly impact working capital and current liability, while notes payable have a larger effect on debt ratios and may not directly impact working capital.

• Effect on credit standing: While both liabilities affect your organization’s credit, notes payable have a much larger impact because they directly affect your debt-to-equity ratio and other metrics lenders use when assessing financial health.

• Influence on daily operations: Accounts payable have a much stronger influence on day-to-day operations because they directly impact cash flow and vendor relationships.

   

Which liability type is best for procurement decisions?

For routine procurement, accounts payable are typically preferable. They support simpler, more flexible purchases and don’t typically involve an interest expense. Because accounts payable are short-term liabilities, they’re ideal for managing everyday operational expenses such as supplies, utilities, and rent.

Notes payable are often more suitable to finance large asset purchases because they help maintain the short-term cash flow needed for other business expenses. Instead of supplying up-front capital for new property or major renovations, for example, your organization can use formal agreements with lenders for a more structured approach to long-term debt without disrupting daily operations.

The need to make strategic financial decisions explains why procurement leaders prioritize cost management and strategic planning as essential skills. According to the 2024 Economist Impact Report on procurement skills (sponsored by Amazon Business), these capabilities are the top two skills needed in procurement over the next five years, according to the Economist Impact, with demand outpacing available training.

How notes payable and accounts payable fit into the procure-to-pay process

Procure-to-pay (P2P) procurement integrates your purchasing workflow with your accounts payable systems to make the purchasing process as efficient as possible. The procure-to-pay process focuses on the transactional aspect of procurement, beginning with the purchase request and ending with final payment.

Accounts payable are central to the P2P process, especially the invoice and payment stages. They ensure timely and accurate payments to suppliers, supporting financial integrity, positive supplier relationships, and policy compliance.

Meanwhile, notes payable typically sit outside the day-to-day P2P process, but they play a role in non-standard or strategic procurement. This includes large capital purchases and negotiated supplier financing. 

While not directly tied to routine P2P automation, notes payable are essential for managing liquidity and enabling larger investments without compromising operational cash flow.

Strategic use cases for notes vs. accounts payable

Notes payable and accounts payable each come with their own strategic use cases, with some tied to day-to-day purchasing and others to long-term strategic investments. 

Notes payable use cases

An organization might use long-term notes payable, or liabilities with repayment terms longer than a year, to meet a variety of strategic goals, including:

• Funding growth initiatives by financing new locations, scaling existing operations, or hiring new staff

• Reducing tax burden by deducting interest payments as allowable expenses

• Bridging short-term cash flow gaps without drawing from operational budgets

• Building credit by demonstrating repayment reliability and creditworthiness to future lenders

• Financing capital expenditures such as company vehicles, data centers, or business acquisitions
   

Accounts payable use cases

Accounts payable can also help your organization meet key strategic objectives like:
 

• Preserving cash flow by taking advantage of early payment discounts

• Maximizing vendor relationships through timely payments that help increase your access to more favorable terms and discounts

• Optimizing with automation software to take advantage of recurring delivery discounts and speed the purchasing process with automatic Approval Workflows, such as those available through Amazon Business 

Using technology as part of your accounts payable process can also give you access to extended payment terms. For example, Amazon Business offers a Pay by Invoice option with 30-day terms. You can extend these terms with a Business Prime membership plan to get even more control over cash flow without disrupting your procurement cycles.

Tips for managing notes payable vs. accounts payable

Whether you use accounts payable or notes payable in your procurement process, staying on top of your repayment terms is essential for maintaining good financial standing. Use these tips to help you stay current on your organization’s spending and drive greater impact.

1. Map repayment plans to procurement cycles

Match your repayment schedules with your procurement windows and quarterly budgets to help your organization operate as efficiently as possible. Because procurement purchases and loan repayments involve significant spending, they affect your outgoing cash flow. Aligning these payments with incoming cash or revenue can reduce your risk of liquidity problems.

2. Monitor all invoices with spend tracking tools

Leverage automation and e-procurement dashboards to reduce manual tracking and late payment risk. 

For example, you can use Amazon Business’ Spend Visibility (a Business Prime feature) to analyze spending patterns, identify cost-saving opportunities, and make more informed purchasing decisions. 

According to a 2024 study by PYMNTS, 95 percent of companies that fully automate their accounts payable process find increased accuracy and efficiency and a reduced risk of fraud. Although only a handful of accounts payable departments report being fully automated, this number is expected to grow exponentially, with two-thirds of AP departments expecting to be fully automated by the end of 2025.

3. Match liability type to your strategic goals

Consider which liability type would be best for each purchase before beginning the buying process. Factor in your current capital, upcoming large purchases, and your procurement KPIs. Consider using accounts payable for flexible, short-term purchases and notes payable for planned investments with longer timelines.

Combining notes payable and accounts payable into one strategy

While notes payable and accounts payable each serve a unique purpose, using a combination of both can help you develop a comprehensive procurement strategy that results in better long-term financial health. Understanding the differences and knowing when to apply each is key to effective purchasing that delivers maximum value.

Modern procurement solutions and analysis tools can help ease the financial decision-making process with insights to point you in the right direction. Amazon Business simplifies procurement by offering tools that enhance visibility, control, and efficiency across the procure-to-pay process. 

With features like consolidated invoicing, Approval Workflows, and spend tracking, Amazon Business streamlines how you manage accounts payable, helping align your purchasing activities with your broader financial goals and timelines.