cashflow
Accounts Payable (AP)
Money you owe suppliers for goods or services already received.
Definition
Accounts payable (AP) is the mirror image of AR: money you owe suppliers for invoices received but not yet paid. AP is a current liability. Smart AP management is about timing: pay on time to preserve relationships and avoid late fees, but not earlier than needed. Stretching payables (paying at the last allowed day) is a free source of working capital. Days Payable Outstanding (DPO) measures how long you take to pay; for most service businesses 30-45 days is the working range.
In your business
- →Pay on time, not early - cash in your account is more valuable than supplier goodwill from paying 10 days early
- →Negotiate longer terms with major suppliers as the business grows
- →Never stretch payables with critical suppliers - the relationship cost is higher than the cash benefit