Accounts Payable

What It Means

Accounts Payable (often referred to as just "AP") is a common liability account that represents the total sum of money a company owes to its vendors and suppliers.

Why It’s Important

Accounts Payable represents an expected use of cash in the near future. The company has already incurred the expense, and is expected to pay for it later. When AP increases over time, it could mean that a company is purchasing an increasing amount of goods or services on credit, which could be signaling growth or a shift in financial strategy, or it could be a sign that the company is experiencing a cash crunch and isn't able to pay off its credit balances on time. Conversely, decreasing AP represents a use of cash as the the company pays down its debt.

Buyers will want to look closely at historical AP to understand how the balance of this account has varied over time relative to sales. What might be considered a healthy range for AP can vary heavily from industry to industry and depends on a number of factors, including the age of a business and the relationships that have been developed with suppliers over time.

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Accounts Payable

What It Means

Why It’s Important

Related Terms

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