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Accounts Payable AP
Also called AP, trade payables, payables, creditors.
What you owe suppliers on open terms — the other half of the working capital picture, and the line an underwriter reads for stress before reading the profit and loss statement.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
Supplier credit is the largest source of short-term funding in most small businesses and the only one with no application. It is also the first thing to move when cash is tight, which is why lenders read the aging closely.
The aging
Payables are bucketed the same way receivables are: current, 31–60 days, 61–90, over 90. What matters is the shape and the trend. A book that was 85 percent current a year ago and is 40 percent current now describes a cash problem that has not yet reached the profit and loss statement.
Where it connects
In underwriting
The AP aging is a standard document request alongside the AR aging, and the two are read together. A book with $400,000 of receivables and $500,000 of payables over 60 days is not a business with $400,000 of collateral value.
Where this one catches people
Stretching payables is the cheapest financing available right up to the point where it becomes the most expensive, and the change happens all at once. Early payment discounts forgone, a switch to cash on delivery in your busiest month, a credit line withdrawn by your main supplier, a stop-ship, and slow-pay marks on your trade lines all tend to arrive together, usually just as you needed the supplier most.
Do the arithmetic on any discount you are passing up before you decide that paying late is free. A 2 percent discount for paying 20 days earlier is not a 2 percent decision — annualised, it is a very expensive form of borrowing, and often more expensive than the facility you were reluctant to arrange.
Worked through
Illustrative only. A supplier offers 2/10 net 30 — a 2 percent discount for paying within 10 days, otherwise the full amount at 30 days.
Passing up the discount buys you 20 extra days of credit at a cost of 2 percent of the invoice.
The cost is measured against what you actually pay, so it is 2 ÷ 98 = 2.04 percent for 20 days.
Annualised: 0.0204 × (365 ÷ 20) = 0.372, or about 37.2 percent a year.
On $600,000 of annual purchases from that supplier, taking every discount saves $12,000 a year. A line of credit drawn to fund the early payments at a materially lower annual rate leaves the business ahead — and the supplier relationship intact.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
Read next
Accounts Payable — common questions
What does accounts payable mean?
What you owe suppliers on open terms — the other half of the working capital picture, and the line an underwriter reads for stress before reading the profit and loss statement.
Where does accounts payable catch people out?
Stretching payables is the cheapest financing available right up to the point where it becomes the most expensive, and the change happens all at once. Early payment discounts forgone, a switch to cash on delivery in your busiest month, a credit line withdrawn by your main supplier, a stop-ship, and slow-pay marks on your trade lines all tend to arrive together, usually just as you needed the supplier most.
Is accounts payable the same as an interest rate?
Accounts Payable is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does accounts payable apply to?
Working Capital, Business Line of Credit, Invoice Financing, Asset-Based Lending.
Is there a worked example of accounts payable?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside accounts payable?
Accounts receivable, Aging report, Cash Conversion Cycle, Cash flow, Cost of Goods Sold.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.