Accounts Payable (AP)
Definition
Accounts payable is money the company owes suppliers for goods and services already received but not yet paid for. It is a current liability and a component of working capital — effectively free short-term financing from suppliers.
An increase in AP is a source of cash (the company received inputs without paying yet), so it is added in cash flow from operations. Stretching payables improves cash flow in the short run but can strain supplier relationships.
Analysts track payables via days payable outstanding (DPO, roughly AP divided by COGS times 365). Together with DSO and inventory days, it determines the cash conversion cycle.
Why interviewers ask
AP tests the working-capital sign convention in reverse: an increase in a current liability is a source of cash — candidates frequently flip this. It also features in "how could a company improve cash flow without changing profitability?" (stretch payables, collect receivables faster, reduce inventory).
Related terms
Interviews don't test definitions — they test recall under pressure.
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