How Do Accounts Payable Affect a Medical Office?

Do you have a business in the healthcare sector in Australia? In that case, accounts payable or accounts payable outsourcing are an essential component of the financial operations of any business or organization, and medical offices in Australia are no exception.

Accounts payable refers to the money a business owes to its suppliers or vendors for goods and services received but has yet to be paid for. But how does it affect people in the healthcare sector? In this blog, we will explore the impact of accounts payable on medical offices in Australia.

Importance of Accounts Payable in a Medical Office

Accounts payable is a crucial aspect of a medical office’s financial management. A medical office relies on suppliers to provide a wide range of goods and services, including medical supplies, equipment, medical billing, cleaning, and maintenance.

With an efficient accounts payable system, a medical office may avoid financial difficulties, which can lead to many problems, including shortages of essential supplies, equipment breakdowns, and staff shortages.

Accounts payable also plays an essential role in managing a medical office’s cash flow. In the medical industry, there is often a delay between when services are provided and when payment is received. This delay can create a cash flow gap, which can be avoided by carefully managing accounts payable.

A medical office can maintain its cash flow and avoid cash flow problems by ensuring that payments are made on time. In addition, timely payments play a role in helping your business get good ratings.

In Australia, many clinical services are GST‑free, but some supplies and procedures are taxable; Accounts Payable (AP) must validate ABNs, invoices, and code mixed GST correctly to avoid BAS errors and penalties. Align invoice due dates with BAS cycles and ensure input tax credits are only claimed on eligible supplier invoices.

Reference: See Services Australia guidance on GST treatment for health professionals and PIP payment schedules for timing impacts.

From 1 Nov 2025, expanded bulk‑billing incentives and a new Bulk Billing Practice Incentive Program change revenue timing; AP payment terms and discount capture strategies should be re‑calibrated around these inflows.

How are Accounts Payable Different From Accounts Receivable in a Medica Office?

Accounts payable in a medical office refer to the amount the practice owes to vendors or suppliers for goods or services received, such as medical supplies or equipment.

On the other hand, accounts receivable refer to the amount of money owed to the practice by patients or insurance companies for services rendered. In short, accounts payable are the practice’s debts, while accounts receivable are the practice’s assets.

The Impact of Accounts Payable on a Medical Office in Australia

Cash Flow Management

As mentioned earlier, accounts payable plays a crucial role in managing the cash flow of a medical office. Medical businesses in Australia often have to address cash flow issues due to the time lag between the provision of services and the receipt of payment. One can minimise the delay by carefully managing accounts payable.

If accounts payable are not managed effectively, it can lead to cash flow problems. Delayed payments to suppliers can cause supply chain disruptions, which can impact the medical office’s ability to provide quality care to patients. It can also strain relationships with suppliers, who may stop providing goods and services to the medical office.

Model AP runs around Medicare and Practice Incentives Program (PIP) schedules; quarterly incentive receipts affect liquidity and are ideal anchors for early‑payment discounts and supplier term negotiations.

Managing Accounts Payable

Accounts payable also play a critical role in maintaining accurate financial records. A medical office needs to keep accurate records of its accounts payable to ensure that it can prepare factual financial statements.

Financial statements are essential for a medical office as they provide insights into the business’s financial health. If accounts payable are not managed effectively, it can lead to inaccurate financial statements.

This can lead to a lack of confidence in the medical office’s financial health, affecting funding, investment, and partnerships. It can also result in operational challenges.

Implement healthcare‑tailored controls – three‑way match for high‑risk clinical consumables, segregation of duties (ordering, receiving, approving, paying), and supplier statement reconciliations each month to prevent duplicate or fraudulent payments.

Competitors emphasise automation, advanced payment methods, and fraud mitigation. To match and differentiate:

Use AP automation integrated with the clinic’s PMS/ERP for OCR capture, PO‑match, automated approval routing, and secure digital payments; track KPIs like first‑pass match rate, cycle time, and discount capture.

Consider virtual cards/ACH with controls to reduce check fraud, improve reconciliation, and generate rebates where appropriate under clinic policies.

Supplier Relationships

The relationships that a medical office has with its suppliers are critical. Suppliers provide the essential goods and services a medical office needs. Managing accounts payable effectively is vital to maintaining positive relationships with suppliers.

If payments to suppliers are delayed or not made, it can lead to a breakdown in the supplier relationship. This can lead to supply chain disruptions, impacting the medical office’s ability to provide quality care to patients.

Track state differences and recent updates (e.g., Victoria’s bulk‑billed GP exemption mechanics and ACT/QLD amnesty settings) and tag eligible GP payments accordingly in AP.

Segment suppliers (critical clinical vs. operational) and prioritise payment cycles to avoid clinical stock‑outs; negotiate early‑pay discounts with non‑critical vendors while preserving cash for essential items.

Cost Control

Effective management of accounts payable can also help medical offices control costs. By managing accounts payable efficiently, a medical office can ensure that it only pays for the goods and services it needs.

It can also help to identify opportunities for cost savings, such as negotiating better payment terms with suppliers or identifying areas where costs can be reduced. If accounts payable are not managed effectively, it can lead to cost overruns.

This can impact the financial health of the medical office, leading to financial difficulties and a strain on relationships with suppliers.

Harmonise AP due dates with payer remittance patterns (Medicare, private insurers) to close timing gaps; use rolling cash‑flow forecasts so AP runs stay net‑cash neutral.

Maintain an audit file with ABN/GST checks, compliant invoices, goods‑received evidence for clinical items, and payroll obligation support for doctor payments to withstand ATO and state revenue reviews

Protect patient‑linked invoice data by restricting PHI access in AP tools, enforcing role‑based permissions, and retaining audit trails consistent with healthcare privacy expectations.

Track AP KPIs monthly: invoice cycle time, first‑pass match rate, exceptions ratio, discount capture rate, and days payable outstanding by supplier tier.

To Sum It Up

Accounts payable plays a critical role in the financial management of a medical office in Australia. It is essential for managing cash flow, maintaining financial records, supplier relationships, and cost control.

Effective accounts payable management is essential for maintaining positive relationships with suppliers and ensuring that the medical office can provide quality care to patients. If you need help managing your accounts payable, contact our expert accounting consultants today!

Frequently Asked Questions About Medical Office Accounting

How do accounts payable and receivable affect a medical office?

Accounts payable are the bills the medical office has to pay to suppliers for goods and services. Accounts receivable is the money the office expects to receive from patients or insurance. Managing both well helps keep the office’s finances balanced and operations smooth.

What is cash flow and what impact does it have on practice finances?

Cash flow is the movement of money in and out of the medical office. When the cash flow is good, the office has enough money to pay bills and staff on time. If cash flow is poor, it can cause delays in payments and affect patient care.

What are the consequences if accounts payable or receivable are not performed accurately?

If accounts payable and receivables are not managed correctly, the office may pay late or miss payments and lose money it is owed, causing supply shortages and cash problems. Ultimately, it can affect the quality of care and the office’s reputation.

Why is it important to keep good relationships with suppliers in a medical office?

Suppliers provide essential items like medical supplies and equipment. Paying them on time helps build trust and ensures steady deliveries.

How can a medical office improve its accounts payable process?

The office should keep clear records of all bills and check invoices carefully before paying. Paying suppliers on time helps avoid extra fees and keeps suppliers happy. Using software can also make the process easier and more accurate.

What happens if a medical office has poor cash flow?

Poor cash flow means the office doesn’t have enough money available when needed. It may cause problems in running the office and affect the care patients receive.

Which AP controls reduce fraud in a medical office?

Use role‑based approvals, three‑way match, and secure e‑payments; avoid single‑person control of invoice creation and payment release.

How can AP automation help a multi‑site practice? 

Centralised OCR capture, rules‑based coding, and routed approvals cut cycle time and standardise cost‑centre coding across locations.

How do GST and BAS affect AP in clinics? 

Code GST‑free clinical items vs taxable supplies correctly, validate supplier tax invoices, and reconcile BAS to AP ledgers quarterly.