Accounting glossary
Accounts payable
Accounts payable is the money your business owes vendors for goods and services received on credit. It appears in your balance sheet as trade payables (sundry creditors), and paying on time protects your input tax credit, your tax deductions and your standing with vendors.
Why it matters to your business
Paying vendors is not only about goodwill. Late payments can cost you input tax credit, interest to micro and small suppliers, and a delayed income-tax deduction. Paying too early costs you too: cash leaves before it needs to. A clear payables list lets you pay each bill on its due date, no earlier and no later, and plan cash for the week ahead.
How it works
Each purchase or expense bill adds to the vendor’s balance; each payment, debit note or TDS deducted reduces it. Settling payments against specific bills keeps the ageing accurate.
A worked example of the 180-day rule: on 01-04-2026 you receive a bill for ₹1,18,000, of which ₹18,000 is GST, and you claim that ₹18,000 as input tax credit. If the bill is still unpaid 180 days after its date, towards the end of September 2026, you must reverse the ₹18,000 in GSTR-3B with interest, and claim it again when you pay. A report of bills unpaid over 180 days prevents surprises.
Common mistakes
- Paying without checking the bill. Compare the bill with your purchase order and what actually arrived before you pay. See three-way matching.
- Payments not set against bills. Amounts left “on account” make every bill look unpaid, and you may pay the same bill twice.
- TDS deducted but not deposited. TDS you deduct from a vendor’s bill or payment belongs to the government and must be deposited by the monthly due date; late deposit attracts interest.
- No view of what falls due. Without a list of bills due this week, payments happen when a vendor calls, not when they are due.
- Treating MSME vendors like others. Mark which vendors are registered micro or small enterprises, so their bills are paid within the legal limit.
Questions about Accounts payable
Is accounts payable a liability?
Yes. It is a current liability, shown in the balance sheet as trade payables or sundry creditors, because you expect to pay it within the year.
What happens to input tax credit if I do not pay a vendor within 180 days?
Under GST Rule 37, credit taken on a bill that you have not paid within 180 days of its date must be reversed in your GSTR-3B, with interest. You can claim it again once you pay the vendor.
How quickly must I pay a micro or small enterprise?
Under the MSMED Act, within the credit period you agreed in writing, which cannot exceed 45 days, or within 15 days if nothing was agreed. Late payment carries interest, and income-tax law allows the expense only when such a late payment is actually made. Ask your CA how this applies to your vendors.
What is the difference between accounts payable and accounts receivable?
Accounts payable is what you owe vendors; accounts receivable is what customers owe you. Keeping the first under control protects your supply, and the second protects your cash.
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