How Trade Payables Work and Why They Matter for Your Business

Businesses have a lot on their plates.

And one of their top concerns? 

Starts with financial obligations.

Say, for example, that you asked for an order from a supplier with the agreement of paying later.

That's not only a purchase 

That's also a debt

Trades payable are something in between, having the power to influence both your cash flow and supplier relationships.

But how?

Let's begin with the basics 

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What are Trade Payables?

Trade payables are amounts of money you owe to suppliers for certain goods or services already delivered. If you ordered raw materials but agreed to pay within 60 days, that's considered trade payables.

So are they the same as accounts payable?

No, while trade payables are part of your accounts payable and should be registered as such, it's worth noting that accounts payable refer to all kinds of financial liabilities, trade payables only include the ones incurred with your suppliers. They are also short-term in nature.

That means, of course, that trade payables need to be seen as current liabilities. 

The process generally includes: 

• Receiving the goods from the supplier.
• Getting the invoice with all the payment details and net terms.
• Recording the amount to be paid as a trade payable in your accounting system.
• Paying the debt before the deadline.

So are trade payables only about money?

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Yes and no

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It certainly impacts your cash liquidity, but depending on your approach to managing them, trade payables can determine the nature and success of your supplier relationships.

Trade payables Vs non trade payables 

• Trade payables are what you owe suppliers for goods or services directly related to your business operations.
• Non-trade payables, on the other hand, are amounts you owe that aren’t tied to your main operations. Think rent, legal fees, employee reimbursements, or utilities.

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The Benefits of Trade Payables 

Better cash flow

We saw this recently in an article about net terms. Getting some degree of flexibility in your payment terms gives you the opportunity to breathe financially speaking. Perhaps it's the case that in those days or months, you don't have to pay the supplier, you can reinvest the money or receive higher volumes of profits 

Improved working capital 

If you manage your trade payables with efficiency and clear intentions, it might be simpler to achieve that sweet spot between what you have in terms of resources as a company and what you owe. Something critical for long-term growth.

Supplier relationships 

Money isn't sufficient to build long-term relationships, but it definitely sends positive signals to suppliers. 

Paying on time is a great step to show the market you are a reliable partner to work with.

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The Risks of Trade Payables 

Trade payables aren't harmful as long as you know how to manage them. If that's not the case, here's a list of things that could go wrong.

Mistakes due to disorganised systems

Not to put all the blame on manual processes, but if you are still dealing with messy spreadsheets or worse, paper sheets, to record your liabilities and organise pending invoices, there's a high chance of overlooking an important detail more often than not. 

Damaged reputation 

And with missed details and chaotic processes, problems arise. Chronically late payments and the consequent issues with suppliers can quickly deteriorate all the effort you've put into showcasing a strong and positive image in the industry.

Late payments

Yeah 

These are a serious problem 

Missing due dates can lead to late fees, interest charges, and even strained supplier relationships. Over time, this can affect your ability to negotiate favourable terms, or in worst cases, result in suppliers cutting you off. A scenario nobody wants.

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Best Practices for Trade Payables Management 

Spoiler? 

You need a good system as the basis.

Automate 

And by system, we don't only mean a structure but an actual platform designed to help you run your business with real-time information.

An accounts payable system, for example, is precisely built to simplify invoice intake, match it with purchase orders, request approvals, schedule payments, and much more in a single place. 

The result?

You don't need to worry about delayed payments.

Pay attention to the payment term.

Even in the scenario where all your suppliers offer you net terms, you won't find the same terms everywhere.

Keep a centralised record of your payment terms, and don't shy away from automatic reminders so you always know when to pay what.

Do a 3-way match 

Before approving any invoice, always do a three-way match between the invoice, the original purchase order, and the delivery receipt. This is how you make sure you're paying only for goods or services that were actually ordered and received, and that prices match what was agreed upon.

Work with metrics 

It's been repeatedly said here at ControlHub. 

You can't fix something you can't measure. 

Maybe that's why KPIs are so popular for businesses of all sizes. 

Metrics like Days Payable Outstanding help you figure out with precision how long, on average, your company is taking to pay suppliers. A healthy DPO balances taking full advantage of credit terms without harming supplier trust. The AP Turnover Ratio can also reveal how efficiently you're managing obligations throughout the year.

Talk with your suppliers. 

Sometimes the best you can do is to have a chat with your suppliers.

Transparent communication can make a world of difference.

I, despite all your good plans, a delay with the payments happens, have an honest talk with your suppliers, see what went wrong, and what improvements can be truly achievable.

The Final Lesson 

Trade payables might seem like just another accounting line item, but as you’ve seen, they play a much bigger role in your business’s financial health. When managed well, they’re more than just bills waiting to be paid; they’re a tool you can use to protect your cash flow, build stronger vendor relationships, and create more flexibility in how you operate.

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By understanding what trade payables are, how they’re recorded, and how they differ from other liabilities, you’re already a step ahead. Add in smart practices like automating your AP process, tracking payment terms closely, and keeping open communication with your suppliers, and you’re setting your business up for fewer headaches and more growth opportunities.

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