Accounts Payable
What does it mean
Accounts Payable is the term for the combined total of all payments owed to suppliers for goods or services already received by the company. Typically Accounts Payable have payment terms ranging from 15-45 days. Accounts Payable shows up as a Liability on a Balance Sheet.
Why does it matter
Monitoring a businesses working capital position is very important, because the primary reasons businesses fail is due to a lack of Liquidity. Accounts Payable is a necessary element of most businesses because they are dependent on receiving supplies from vendors that they then use to provide goods or services for their customers. Accounts Payable is also one area that a business may delay payment if business operations were to slow. By delaying payment of payables, the business can survive a cash shortfall; however, if they push this too far, suppliers may choose to stop providing essential supplies to the business, and if that were to happen, the business will cease to exist.
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