What is Accounts Payable?

Accounts payable (AP) is the money a business owes its suppliers for goods or services received but not yet paid for, recorded as a current liability on the balance sheet.

AP is effectively short-term, interest-free supplier credit. Stretching payment terms — Days Payable Outstanding (DPO) — frees up cash, but pushing too far damages supplier relationships and may forfeit early-payment discounts (e.g. 2/10 net 30 offers a 2% discount for paying within 10 days instead of 30).

The gap between DSO and DPO drives the cash conversion cycle: businesses that collect quickly and pay slowly self-finance growth.

Formula

DPO = (Accounts Payable ÷ COGS) × 365

Example

A restaurant receives CHF 20,000 of food deliveries on net-30 terms; the amount is recorded as accounts payable until the supplier invoice is settled.

Related terms

Accounts Receivable

Accounts receivable (AR) is the money owed to a business by its customers for goods or services delivered on credit but not yet paid for, recorded as a current asset on the balance sheet.

Working Capital

Working capital is the difference between a company's current assets and its current liabilities, measuring the short-term liquidity available to fund day-to-day operations.

Balance Sheet

The balance sheet is a financial statement that shows a company's assets, liabilities and shareholders' equity at a single point in time, governed by the accounting equation Assets = Liabilities + Equity.

Cash Flow

Cash flow is the net amount of cash moving into and out of a business during a period, measuring the actual liquidity created or consumed rather than accounting profit.

Frequently asked questions

What is DPO?+

Days Payable Outstanding — average number of days a business takes to pay its suppliers.

Is high AP good or bad?+

Good for cash flow, bad if it strains supplier relationships or signals inability to pay.

Should I take early-payment discounts?+

Usually yes — a 2/10 net 30 discount is equivalent to a ~36% annualised return on the cash used.