Frequently Asked Questions about Account Payable
Q: What is Account Payable?
A: Account Payable refers to the amount owed by a company to its suppliers, vendors, or creditors for goods or services received on credit. It represents the company's short-term liabilities.
Q: How does Account Payable work?
A: When a company receives goods or services on credit, it creates an Account Payable entry in its books. The company then pays off the outstanding balance to the supplier or vendor within the agreed-upon payment terms.
Q: What are typical payment terms for Account Payable?
A: Payment terms can vary depending on the agreement with the supplier or vendor. Common payment terms include Net 30, which means payment is due within 30 days, or Net 60, which allows 60 days for payment.
Q: How can a company manage its Account Payable effectively?
A: Effective Account Payable management involves maintaining accurate records, reviewing invoices for errors or discrepancies, paying invoices on time to avoid late fees or penalties, and establishing good communication with suppliers and vendors.
Q: What are the consequences of not managing Account Payable properly?
A: Failure to manage Account Payable effectively can lead to strained relationships with suppliers, delayed deliveries, loss of discounts, and potential damage to the company's credit rating.