Accounts Payable
Also called: AP, creditors, trade payables, sundry creditors
What is Accounts Payable?
Accounts payable is what a business owes its suppliers for goods and services already received but not yet paid. It is a liability, and in practice it is short-term finance extended by your suppliers.
Why Accounts Payable matters
Payables are the cheapest working capital available, and also the easiest relationship to damage. Paying too early wastes cash; paying late without warning costs goodwill and, eventually, terms.
Accounts Payable formula
Days payable outstanding = Accounts payable ÷ Credit purchases × Days in period
Read alongside DSO to see whether suppliers are financing your customers.
How Accounts Payable works in practice
Age payables the way you age receivables, and pay to terms rather than to whoever calls loudest. Where early-payment discounts are offered, compare the discount against the value of holding the cash.
Frequently asked questions
Compare the annualised value of the discount with your cost of cash — often it is worth taking, but not always.