Difference Between Accounts Payable vs Notes Payable
Short-term liabilities are the financial obligations that every business has in order to maintain a good and sustainable working capital management. A good business will always manage and maintain a decent amount of working capital in order to run the business day-to-day operations. Accounts payables and notes payable are often used interchangeably and are a part of current liabilities on the balance sheet but there is a slight difference when they are both analyzed in depth and individually.
In this article, we look at accounts payable vs notes payable in detail.
Accounts Payable vs Notes Payable – Infographics
Here we provide you with the top 7 difference between Accounts Payable vs Notes Payable
Accounts Payable vs Notes Payable – Key Differences
The key differences between Accounts Payable vs Notes Payable are as follows –
- Accounts payables are basic financial obligations of a business which are classified as current liabilities. They generally do not involve any written agreement of a payment to be made within a specified period. Notes payables, on the other hand, are known as written promissory notes that a company receives when it borrows money from a lender which are generally financial institutions and other financing or credit companies
- A major difference between notes payables and accounts payable is that under notes payables the payment terms and the mode are fixed once the lending agreement is done and the funds are furnished by the credit company although in accounts payables there is generally no obligation or a fixed payment term that the company need to adhere to in order to make payments
- Accounts payables are not formal written agreements and most of the times it is a verbal agreement which takes place between the two parties. On the contrary, notes payables are always a formal and written agreement
- Accounts payables are generally due to suppliers or subcontractors and therefore there is no formal interest on the instrument and no fixed obligation to pay. Under notes payables, the instrument always bears a certain percentage of interest which is due every month or according to payment terms which are decided and agreed upon initially
- Accounts payables are always a short-term obligation and are a current liability on the other hand notes payables can be either current or a non-current liability
- Notes payable is basically in the form of a loan which bears the payment terms, maturity dates etc. on the other hand accounts payables is an informal channel which is due to the vendors and the suppliers which makes the payment more flexible and which no formal or written agreement
Accounts Payable vs Notes Payable – Head to Head Difference
Let’s now look at the head to head difference between Accounts Payable vs Notes Payable
|Accounts Payables||Notes Payables|
|Always a short-term obligation to the business||Can be short-term or long-term obligation to the business|
|Accounts payables can be always converted into notes payables||Notes payables can never be converted into accounts payables|
|The amount is generally due to the vendors and the suppliers of the company||Notes payables are the amount which is due to the financial institutions and the credit companies|
|It is created in the case of low-risk customers. A customer which has low risk can be given money because of its good credit history and creditworthiness||It is created in the case of high-risk customers. A high-risk customer should be given money only and when it fulfills certain obligations|
|There are no specific terms under accounts payables and no specific payment obligation to the creditors||There is a specific payment term such as maturity period, interest rate, clauses for non-payment etc.|
|It is a vital competent for the calculation of the working capital and for working capital management||It can be or cannot be taken in the calculation of working capital|
|It originates from the purchase of tradable items or inventories||It may also evolve in case of purchase of long-lived assets or borrowing or to satisfy the existing obligations|
Both accounts payables and notes payables are both a vital component for working capital management and other company short-term obligations which makes the management of these two short-term obligations very important for a company to run their day-to-day business. Accounts payables and notes payables are like a form of debt which can be categorized under both current and non-current liabilities. For efficient working capital management current liabilities like notes payables and accounts payables needs to be managed efficiently.
Businesses need to employ certain processes in order to successfully manage their current obligations if they want to succeed in the long-run.
This has a been a guide to the Accounts Payable vs Notes Payable. Here we discuss the top difference between Accounts Payable vs Notes Payable along with infographics and comparison table. You may also have a look at the following articles –