GLOSSARY // Fundamentals
Accounts Payable
Accounts payable is the mirror image of receivables: money the company owes its suppliers for goods and services it has received but not yet paid for. It sits in current liabilities and functions as an interest-free loan from vendors.
Stretching payables is a legitimate cash-management lever. Every extra day a company holds supplier cash is a day it funds operations with someone else's money, which is why large buyers with negotiating power (big-box retail is the standard case) run payables of 60-90 days. The limit is supplier goodwill — push too hard and vendors tighten terms or price the delay into the next contract.
A sudden jump in payables can also flag stress: companies short on cash pay their bills slower whether suppliers agree or not.
A manufacturer's cost of goods sold is $400M for the year and its accounts payable balance is $50M. DPO = (50 / 400) x 365 = 45.6 days — on average it pays suppliers about a month and a half after receiving goods.
Related terms
Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.