Accounts Payable

Accounts Payable are the exactly ‘mirror image’ of your accounts receivable. These are your short-term obligations that you incur when you receive goods or services before (sometimes way before) you have to actually pay for them. Therefore, it is a component (for many companies – a significant component) of financing for their operations.

Usually the later you have to pay – the better, because it frees your cash to be invested in your financial value – generating projects. However, suppliers often offer a discount for paying an invoice within a defined number of days. For example, 2%, Net 30 terms mean that the payer will deduct 2% from the invoice if payment is made within 30 days.

In this case, you have to perform appropriate financial analysis to determine which payment option is better for you from financial value perspective. In any event, you do not want to miss your payment due date, because it can result in fines (losing money) and will negatively affect your credit rating – which ultimately will cost you even more money.

Therefore, you will definitely need a highly efficient corporate process and a competent employee for monitoring and managing your accounts payable. Also – as we live in a highly imperfect world – you will need to establish an efficient system for preventing embezzlement of funds by your accounts payable personnel. The latter is obviously a part of your risk management system.