Accounts Payable
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Accounts Payable

Definition of Accounts Payable

Accounts payable is a financial term that refers to the outstanding payments that a business or organization owes to its suppliers, vendors, or creditors for goods and services received on credit. It represents the amount of money that the company is obligated to pay in the future for the goods or services it has already received.

What is Accounts Payable?

Accounts payable represents the company's debts to external parties. When a business purchases goods or services on credit, it creates accounts payable as a record of the amount it owes.

Managing accounts payable is essential for maintaining good relationships with suppliers and avoiding late payment penalties. Businesses typically define specific payment terms with their suppliers, specifying the time frame within which the payment should be made. The period can vary based on negotiated agreements, industry practices, and the financial strength of the business.

Keeping track of accounts payable is crucial for effective cash flow management and maintaining the financial health of the business. It helps ensure that the company meets its payment obligations on time and avoids any disruption in the supply chain due to payment delays.

Efficient accounts payable processes involve verifying the accuracy of invoices, reconciling them with purchase orders or contracts, and making timely payments to suppliers.

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