Accounts payable is one of the more important factors affecting cash flow. Bills coming due come right out of your revenue stream, leaving you with less on hand for discretionary purchases. The more carefully you plan when to pay your bills, the better you'll be able to manage and juggle these financial demands, making choices that keep your business both forward-thinking and solvent.
Managing Accounts Payable
Your accounts payable balance reflects the amounts that you owe to suppliers, contractors, tax agencies, utility companies and anyone else you've done business with and haven't yet paid. You can manage accounts payable by paying everything you can as soon as you can, or you can hold off on paying until the last possible date allowable according to the invoice terms. Either way, it's good business practice to consistently pay by the due date to keep your vendors happy, so they will continue to supply your business with the goods and services you need. The discretion to pay accounts payable at any point up until a due date gives you the flexibility to make judgment calls based on a range of variables, such as whether you need to reorder a particular item soon, or even whether you prefer to help smaller rather than larger companies with their cash flow.
Accounts Payable and the Cash Flow Statement
On your cash flow statement, accounts payable appears in the section that summarizes outgoing cash. To plan incoming and outgoing funds month by month, you should summarize the bills that are due each month and enter the total as an outgoing sum, which will be subtracted from your incoming cash to show your remaining cash on hand. This entry will help you plan for the monthly amount that you will put towards paying your bills, but you still need to schedule specific payments when they are due within the current month.
Accounts Payable and the Balance Sheet
Accounts payable appears on your balance sheet as a short-term liability. It decreases your net worth even if you still have the funds on hand because you know it's just a matter of time before they leave your bank account. On your balance sheet, accounts payable is different from a long-term liability such as a term loan, which will be paid over a period of years. Long-term liabilities affect cash flow as well, but their payments tend to be more consistent and therefore require less planning.