Accounts payable

Money the business owes suppliers for goods or services it has received and not yet paid for. Also called trade creditors.

Example

Northgate's payables rose from 480,000 to 600,000, which retained 120,000 of cash it would otherwise have paid out.

Important

Growth funded by stretching suppliers is finance provided by people who never agreed to lend and can withdraw it without notice, usually at the first sign of difficulty.

Related terms

• Working capital — The money tied up in ordinary trading. The operating version - receivables plus inventory minus payables - excludes cash and borrowings, and is the one that behaves like a use of money.
• Days payable outstanding — How long the business takes to pay its own suppliers - payables divided by cost of goods sold, times 365.
• Current ratio — Current assets divided by current liabilities - a rough measure of whether a business can meet what falls due within the next year out of what it expects to turn into cash in the same period.

Lessons that explain it

• The real cost of running the company is often higher than the books show — Early companies often have below-market founder pay, unpaid invoices, deferred costs and free resources. Normalising the expense base shows what the company will actually cost to run. (10 min)
• The balance sheet: what it owns and what it owes — A photograph taken on one specific day, showing what the business has, who has a claim on it, and what is left over for the owners. It is the statement that tells you whether a bad year is survivable. (13 min)

All 578 terms in the Investing glossary