Accounts Payable
Money a company owes to its suppliers and vendors for goods or services received but not yet paid for.
What is Accounts Payable?
Accounts payable (AP) is a current liability on the balance sheet representing amounts a company owes to suppliers, vendors, and service providers for goods and services already received but not yet paid. AP arises from purchasing on credit — the company receives the goods or services and has an obligation to pay within agreed terms (typically 30, 60, or 90 days). Days payable outstanding (DPO) measures how long on average a company takes to pay its suppliers: DPO = (AP / Cost of Goods Sold) × 365. A high DPO means the company is taking longer to pay — effectively using supplier financing to preserve cash. Large corporations often negotiate extended payment terms to improve cash flow.
Example
Apple negotiates 90-day payment terms with component suppliers, while paying them on average in 60 days. With $60 billion in cost of goods sold per quarter, maintaining $15 billion in accounts payable (60-day DPO) effectively provides Apple with free short-term financing. If Apple shortened payment terms to 30 days (DPO = 30), it would need to deploy an extra $7.5 billion in cash for supplier payments.
Source: Apple 10-K FY2024