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Importance of accounts payable for business

Accounts payable are the short term liabilities that a business owes to any of the outside company stakeholders. Accounts payable has a lot of importance when you want to run your business successfully. Some might argue that accounts payable is the amount of money that we owe to someone else in a business, it should be important for that person. Why on earth should we be careful about accounts payable? There are many reasons to it and therefore, we should know what our accounts payables are and when they are due for payment. Let’s look at a few most important reasons for keeping track of our accounts payable.

The first and foremost important reason is that if we don’t exactly know to whom we owe what, we can be fooled by anyone who can receive repeated payments from us. This usually happens with businesses when there are no records maintained or the amount is so much that it becomes extremely difficult to keep a lid on things.

Accounts payable can also be interest bearing. Usually payments in accounts payable are made on time but if you are not paying on time, there are certain conditions attached to the accounts payable under the hood like 2/10 n/30 or something like that. Not knowing the exact date of the payment of an accounts payable, will result into accumulation of interest on your company only because of the negligence.

Accounts payable are also important for maintaining the cash flows. When you are dealing with mass purchases, you often can negotiate the terms of your accounts payable. For example, you are running a manufacturing firm. You purchase raw material, convert it into finished product, and sell it out. The payment that you receive from selling the product comes in very late, but you pay your supplier in fewer days than the days it takes to receive the sales proceeds. This creates a serious gap between your paying money and getting money back from the market. This can be very dangerous since all the time, some of your money will be in the process for no reason. Negotiating with your suppliers and other creditors for accounts payable will not only ease the burden but also spare you from tying too much money into the whole process.

Next time, when you are talking about accounts payable you should know about its importance and be prudent about its accounting.

- By William King

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