PAYABLES: THEIR SIGNIFICANCE - Working Capital Management

Payables constitute a current or short-term liability representing the buyer’s obligation to buy a certain amount on a date in the near future for value of goods or services received. They are short-term deferments of cash payment that the buyer of goods and services is allowed by the seller. Trade credit is extended in connection with goods purchased for resale or for processing and resale, and hence excludes consumer credit provided to individuals for purchasing good for ultimate use and installment credit provided for purchase of equipment for production purposes. Trade credit or payable serve as non-interest bearing source of funds in most cases. They provide a spontaneous source of capital that flows in naturally in the course of business in keeping with established commercial practices or formal understandings.


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