Finance - Learning

What are payables in finance ?

Payables in finance refer to the amounts owed by a company to its creditors, suppliers, or other entities as a result of purchasing goods or services on credit. These are short-term financial obligations that need to be settled within a specific period, usually within a year. Payables are recorded as liabilities on a company's balance sheet and are also known as "accounts payable" or "trade payables."

In simple terms, payables represent the money a company owes to others for goods or services it has received but not yet paid for.

Does financial planning happen with cash in hand or planned cash and estimate with it

Financial planning typically involves both cash in hand (current cash available) and planned cash (future cash inflows and outflows). It is a comprehensive process that helps individuals and businesses to manage their financial resources effectively, achieve their financial goals, and ensure long-term financial stability.

In financial planning, you start by assessing your current financial situation, including cash in hand, assets, liabilities, and income sources. Then, you set financial goals and create a plan to achieve those goals by estimating future cash inflows (such as income, investments, and other sources) and outflows (such as expenses, debt payments, and savings).

The plan should be flexible and adaptable to changes in your financial situation, goals, and market conditions. Regular monitoring and adjustments are essential to ensure that the plan remains effective and aligned with your financial objectives.

In summary, financial planning involves working with both cash in hand and planned cash, as well as making estimates and projections to create a comprehensive and adaptable plan for achieving financial goals.

What are key factors that influence payables in finance ?

Several key factors influence payables in finance. These factors can affect the amount, timing, and management of payables for a company. Some of the key factors include:

Credit terms: The credit terms offered by suppliers, such as payment due dates and discounts for early payments, can significantly impact the amount and timing of payables. More favorable credit terms can lead to lower payables, while less favorable terms can result in higher payables.

Volume of purchases: The volume of goods or services purchased on credit directly affects the level of payables. Higher purchase volumes lead to higher payables, while lower volumes result in lower payables.

Payment policies: A company's payment policies, such as the frequency and timing of payments to suppliers, can influence the level of payables. Companies that delay payments or negotiate longer payment terms with suppliers may have higher payables, while those that pay promptly or take advantage of early payment discounts may have lower payables.

Economic conditions: Economic conditions, such as interest rates, inflation, and overall market conditions, can impact payables. For example, higher interest rates may encourage companies to pay off their payables more quickly to avoid additional interest costs, while lower interest rates may lead to companies taking longer to pay their payables.

Supplier relationships: The quality of relationships with suppliers can influence payables. Companies with strong supplier relationships may be able to negotiate better credit terms, resulting in lower payables. Conversely, strained relationships may lead to less favorable terms and higher payables.

Industry practices: Industry practices and norms can also affect payables. Some industries may have standard payment terms or practices that influence the level of payables for companies operating within that industry.

Cash flow management: Effective cash flow management can help companies optimize their payables by ensuring that they have sufficient cash to meet their obligations while minimizing the cost of carrying payables. Companies with strong cash flow management may have lower payables, while those with poor cash flow management may struggle to meet their payment obligations, resulting in higher payables.

Understanding and managing these factors can help companies optimize their payables, improve cash flow, and maintain strong relationships with suppliers.

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