Glossary
Accounts payable
Money a company owes its suppliers for goods and services it has received but not yet paid for; a current liability.
On this page
Accounts payable (AP) is the amount a business owes to suppliers and vendors for things it has already received, such as raw materials, inventory or services, but has not yet paid for. It sits among current liabilities on the balance sheet because these bills are normally due within a year, usually within 30 to 90 days.
How it works
When a retailer receives $50,000 of goods on 60-day terms, it records the inventory as an asset and a matching $50,000 in accounts payable. When it pays the supplier, cash and payables both fall. In effect, payables are short-term, interest-free credit from suppliers, and they reduce how much cash the company has to tie up in its operations.
Analysts often convert the balance into days:
What to watch for
A rising DPO can be a sign of bargaining power: large retailers and tech companies often negotiate long payment terms, which frees up cash. It can also be a warning sign. If payables balloon while sales stay flat, the business may be stretching suppliers because it is short of cash. On the cash flow statement, an increase in payables adds to operating cash flow, so a one-time jump can flatter that figure for a quarter before reversing.
Compare AP with its mirror image, accounts receivable, and with inventory to see the whole cash conversion picture.