Quick answer
Accounts payable is the money your business owes to suppliers and other creditors for goods and services already received but not yet paid for. It sits on the balance sheet as a current liability, because it normally falls due within 12 months, usually within 30 to 60 days. Lenders review it to see whether the business pays on time or is quietly stretching suppliers to survive.
Key points
- Bills owed to suppliers for things already delivered, recorded as a current liability
- Creditor days show how long, on average, you take to pay
- Lenders read an aged payables report for overdue bills and ATO amounts
- Paying suppliers slowly frees cash but can cost discounts and goodwill
Accounts payable, often shortened to AP or simply “payables”, is the list of bills your business has received but not yet paid. Stock delivered on 30-day terms, the electrician’s invoice, the monthly software subscription: until the money leaves your account, each one sits in payables.
Where it shows up
On the balance sheet, accounts payable is a current liability, meaning it’s due within 12 months. In practice most supplier bills are due much sooner, typically 7, 14, 30 or 60 days after invoice, or on terms such as “30 days end of month”.
Each supplier you owe is a creditor of the business. The credit they extend is called trade credit, and for many small businesses it’s the largest source of short-term funding they have, even though it never looks like a loan.
Why lenders look at payables
A lender reading your accounts is asking a simple question: does this business pay its bills on time? Payables answer it more directly than profit does.
Things that catch a credit assessor’s eye:
- Bills in the 60 and 90-plus day columns of an aged payables report
- Creditor days rising from one year to the next
- ATO amounts building up, including GST, PAYG withholding and unpaid super
- A supplier with a retention of title claim over stock the lender might count as security
A business stretching its suppliers isn’t automatically a bad risk. But the lender will want to know whether new finance fixes the pressure or just adds to it.
Worked example: working out creditor days
Creditor days estimate how long, on average, the business takes to pay suppliers.
Creditor days = accounts payable ÷ annual purchases on credit × 365
A Geelong wholesaler buys $1.2m of stock a year on credit and has $180k in payables at the end of June:
$180k ÷ $1.2m × 365 = about 55 days
Its main suppliers offer 30-day terms. So, on average, bills are being paid more than three weeks late. The owner says it’s because two large customers pay slowly, and the aged receivables report backs that up. That mismatch between money in and money out is a working capital problem, and lenders usually see invoice finance or a line of credit as a better fit than a long-term loan.
If suppliers are already chasing you, see what finance could clear the backlog.
Paying slowly vs paying on time
Holding on to cash by paying later is tempting. It has real costs: lost early-payment discounts, suppliers moving you to cash on delivery, and in the worst case a supplier issuing a statutory demand.
It also cuts both ways. Big customers face their own scrutiny: the Payment Times Reporting Scheme requires businesses broadly with income over $100 million to publish how quickly they settle small business invoices. If you supply big customers, that register can help you negotiate. Our guide to negotiating better supplier terms covers the other side.
Related terms
- Accounts receivable: the money customers owe you, the opposite side of the ledger.
- Supplier credit: the terms a supplier gives you to pay later.
- Current ratio: a liquidity test where payables sit on the bottom line of the fraction.
- Working capital cycle: how long cash is tied up between paying suppliers and collecting from customers.
Supplier bills piling up?
Plenty of owners reach us with a stack of overdue supplier invoices, and usually the business behind them is sound. It’s a timing issue rather than a failing business. Tell us what’s owed, to whom and how soon. Expect to spend about a minute on it, and sending it won’t put an enquiry on your credit file. Your details aren’t shopped around the market; one of our people reads through the figures and rings you to go over them. Be precise about which bills are overdue, since that shapes which lenders will realistically say yes.
Frequently asked questions
Is accounts payable an asset or a liability?
A liability. It's money the business owes. The mirror image, money customers owe you, is accounts receivable, which is an asset.
Are ATO debts and super part of accounts payable?
Accounting software often records GST, PAYG withholding and super owing in separate liability accounts rather than trade payables. Lenders look at them together, though, and an overdue ATO balance usually draws more attention than an overdue supplier.
What is a good number of creditor days?
It depends on the industry and on the terms your suppliers offer. A business on 30-day terms that sits at 31 days is fine. One whose creditor days have climbed from 30 to 75 over a year is probably short of cash, and lenders will ask why.
Can a loan be used to pay suppliers?
Yes. Paying suppliers and clearing overdue bills is a common use for working capital loans, lines of credit and trade finance. The right choice depends on whether the shortfall is a one-off or keeps coming back.
What is an aged payables report?
A report from your accounting software listing what you owe each supplier, sorted by how long each bill has been outstanding, typically current, 30, 60 and 90-plus days. Lenders often ask for one with an application.