Definition
Money a business owes its suppliers and vendors.
Why it matters
Stretching payables while accelerating receivables is a core cash-flow strategy.
Where it shows up in a deal
Payables surface twice in a financing file: in the cash conversion cycle a funder calculates from your financials, and in the aged payables listing requested alongside the aging report. Arrears to the IRS, a state tax authority or a payroll provider get attention first, because those can become liens that sit ahead of the funder.
What it affects
- Unpaid payroll taxes can produce a federal lien that blocks a first-position filing until it is subordinated.
- Aged trade payables tell a funder your cash gap is already being financed by suppliers.
- Suppliers converting you to COD removes the very credit the facility was meant to replace.
- Payables terms and receivables terms together set how much working capital the business needs.
A worked example
A supplier offers 2/10 net 30 on $150,000 of monthly purchases. Paying on day 10 saves $3,000. Funding that $147,000 payment 20 days earlier at 1.5% per 30 days costs $147,000 x 1.5% x 20/30 = $1,470, a net gain of $1,530 for the month.
The common mistake
Related terms
- Days Payable OutstandingThe average number of days a company takes to pay its suppliers.
- Cash Conversion CycleThe number of days between paying for inventory and collecting cash from customers.
- Early Payment DiscountA discount offered to customers who pay before the due date, such as 2/10 net 30.
- Working CapitalCurrent assets minus current liabilities — the cash available to run daily operations.
Questions about how accounts payable affects your facility?
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