Accounts Payable

Beginner

Also known as: Trade Payables

Accounts payable is the money a business owes to its suppliers for goods or services it has received but not yet paid for.

Businesses often buy on credit, receiving goods now and paying later under agreed terms, such as within 30 days. Until the bill is paid, the amount is recorded as accounts payable, a current liability on the balance sheet.

For example, a restaurant receives a delivery of food worth 4,000 with 30 days to pay. It records the cost and 4,000 of accounts payable. When it pays the supplier, cash falls and the payable is cleared.

Accounts payable is a normal and useful form of short-term financing. Paying suppliers on agreed terms, rather than immediately, lets a business keep cash for longer. However, paying late can damage supplier relationships, lead to penalties or cause suppliers to stop delivering.

Managing payables is part of managing working capital. Analysts compare payables with purchases or cost of sales to see how long a company takes to pay its bills. A sudden rise in this time can sometimes signal cash flow problems.

Note: Trade payables is another name for accounts payable, used especially under IFRS. It refers to amounts owed to suppliers for normal purchases.

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