Accounts payable (AP) represents money the business owes others. When a food distributor delivers 2,000 in accounts payable until payment is made. AP appears as a current liability on the balance sheet — it is an obligation the business has incurred but not yet settled.
AP is the mirror image of accounts receivable: one business’s payable is another’s receivable. Managing AP means tracking due dates, paying on time to maintain supplier relationships (and credit terms), and not paying early unless a discount justifies it. Late payment risks late fees, loss of credit terms, and damaged supply chain relationships.
The relationship between AR and AP determines a business’s cash conversion cycle — how long cash is tied up between paying suppliers and collecting from customers. A business that pays suppliers in 15 days but collects from customers in 45 days has a 30-day gap that must be funded from working capital.