Accounts Payable Defined

Small Business Definitions

Accounts Payable Defined

Accounts Payable definition - this is a listing of accounts in which money is owed to specific companies, vendors or individuals for products or services that have been purchased on credit. Accounts payables are usually an item that will be paid for in a relatively short period of time, less than one year.

If a company’s business is growing, it’s reasonable to expect its accounts payable, to grow in line with it's projected growth. But if accounts payable rise significantly more than a measure of its overall business activity, such as sales, it should be looked at.

There are various reasons for a disproportionate rise in accounts payable. Perhaps the company anticipates a supply shortage or a price increase for some component or raw material, and it has increased its inventory to protect itself. But this could also signal trouble.

Failure to pay its debts on time may damage the company’s credit rating, which may mean it will be charged undesireable interest rates when it needs to borrow. In extreme cases, it can bring a company to the bankrupcy.

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