What is Payables?
Payables are a current liability, and a rise in them adds to operating cash flow because the cash has not yet left the business. That extra cash works like short-term funding from suppliers, but it is recorded as an operating payable, not a borrowing. Paying later than agreed can breach supplier terms, lose discounts or put supply at risk, so higher payables are not by themselves a sign of a better business.
Also called accounts payable, trade payables, AP, creditors
Payables days = Payables ÷ Cost of sales × 365
Riverbend Bikes, FY3 ($k, illustrative, lesson J2)
- Payables: 1,900 → 2,300
- +400
- Cost of sales
- 19,500
- Payables days
- 43.12,300 ÷ 19,500 × 365; payables did not grow with receivables and inventory
Supplier funding is not a better business
If year-end payables had equalled 90 days of cost of sales, FY3 operating cash flow would read +2,103 instead of −405, with the same sales and customers.