Accounts payable are short-term liabilities of a company that it owes to suppliers, creditors, and vendors for on-credit purchases of goods or services not yet paid for.
Key Characteristics:
- Invoices provide remittance details while payment terms like net 30 days dictate due dates
- Aging reports track payables by time period to prioritize payment and avoid late fees
- Purchase order systems initiate procurement and track receipt/invoicing milestones
- Efficient payable management prevents overdue notices and maintains supplier relationships
Example:
By implementing an automated accounts payable system, the manufacturer streamlined invoice processing, shortened payment cycles, and earned early payment discounts, reducing carrying costs.
Key Takeaways:
Proper accounts payable administration entails recording liabilities accurately and liquidating obligations per contractual terms to maintain favorable supplier credit ratings while containing rising working capital needs. Effective systems promote payable control and cash conversion.