Jul 25 2013

What is account payable and accounts payable management


     Each company purchases a certain material, human and other resources in its activity. However, to make immediate payment for the acquisition of resources is not always possible. Suppliers often provide some postponement in payments for delivered resources. Our discussion will be focused on the management of company accounts payable today.

What is account payable?

Accounts payable definition.

Accounts payable are the company debts for received material and other resources which must be paid in one or another period.

The main types of accounts payable are the following:

  • Payables for goods, works and services. It occurs when a company first receives the goods, works, services, and pay for them after some time.
  • Payables on settlements with employees (wages payable). It arises when a company counts employees salary and pay it after settlement period.
  • Taxes payables arise when a company counts tax liabilities and pay them in future periods.
  • Loans and credits payable occurs when a company has unpaid long-term or short-term credits or loans.
  • Other payables. Shareholders payables (dividends payable), judgments payables and other payables fall into this category.

Accounts payable flowchart

  1. Goods, works and services
  2. Payments to suppliers
  3. Labour force
  4. Wages
  5. Taxes
  6. Credits and loans
  7. Repayment of credits and loans
  8. Other payables
  9. Repayment of other payables

Company payables, as accounts receivable, are classified in terms of repayment (payables period) for:

  • Short-term payables. Maturity of the debt up to 30days.
  • Mid-term payables have a maturity from 30 to 60 days.
  • Long-term payables should be repaid after more than 60days.

Payables can be uncollectible in the event that the lender ceased operations or forgives a debt. Company recognizes uncollectible account payable as its other revenue in this case.

The main tasks of the financial manager for the management of payables are the following:

  1. Control of the repayment terms. The company may have significant losses if overdue payment terms. Suppliers can charge penalties and fines for late payments. Company executives may carry legal responsibility if the company makes late payment of taxes or court payable order.
  2. Analysis of financial resources availability. The financial manager should analyze the financial availability of company for repayment of debt within the required time. If lack of funds is expected to a certain maturity, it is necessary to attract additional financial resources.
  3. Reporting. Manager must prepare analytical reports on the payables amount and on the repayment terms. It is also important to analyze the actual payables dynamics.

     This is the main aspects of the company’s accounts payable management.

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