First of all, it is necessary to clearly indicate what is payables. This concept refers to the total debt of an economic entity to all creditors. That is, these are the funds that must be returned in full after a specified period of time.
Most often, accounts payable to counterparties are found, as a rule, these are suppliers of materials and raw materials, as well as buyers of finished products. Regularly there are obligations to the staff for the work performed.
But not always the organization can repay debts in a timely manner; in this case, existing payables significantly worsen financial performance. This is especially reflected in the liquidity and solvency of the enterprise, because it is precisely by these criteria that investors judge the feasibility of investing. In addition, if there is a payable in the balance sheet that was not paid on time, the counterparty has the right to file a lawsuit. In this case, the borrower will have to pay not only the full amount of the debt, but also the prescribed allowances in the form of a fine, penalty or penalty.
It should be understood that prolonged default on obligations to suppliers and other persons can lead to serious consequences, such as bankruptcy, that is, the complete inability of the enterprise to carry out its activities in the future. There are two ways of collecting debts: judicial and the so-called claim, or out-of-court. The first involves filing a lawsuit and waiting for further proceedings, and according to the second method, the parties independently decide how and to what extent accounts payable are repaid.
In accounting, a situation often arises when there is an amount of debt that will not be returned to the creditor. Such debts must be written off and at the same time correctly displayed in the balance sheet. So, debt can be written off only at the end of the limitation period. As a rule, it is established by the judicial authority and is usually three years since the borrower had to fulfill the obligation in full. Typically, the contract between the lender and the borrower indicates the final repayment date, then the limitation period begins on the day following that date. Earlier debt cancellation is possible only in case of bankruptcy of the enterprise and its liquidation.
If the organization has temporary financial difficulties, it is worth warning the lender about this. Based on the available information, accounts payable are restructured, that is, a compromise is found and conditions are created that are most favorable for the speedy fulfillment of obligations. Thus, the lender can extend the loan repayment term or draw up a new schedule for partial repayment of the debt with the previous date of the last payment. Some put forward alternative options in the form of reducing the amount of debt, taking into account its early repayment or replacement with another debt, that is, refinancing is carried out. This is done in order to reduce the risk of default and guaranteed receipt of at least part of the payment.
Separately, it is worth highlighting such restructuring methods as offset, novation and compensation. Settlement of mutual claims is carried out only if the parties are bound by mutual obligations of a uniform nature, often monetary. If the debt amount of one counterparty is less than that of another, then the offset is issued for a smaller amount. When accounts payable are recovered through novation, the parties decide to replace the obligation with another equivalent debt. If the further return of the debt is in great question, then you can use the compensation. This method means the payment of debt in the form of other property, asset or money. The borrower can pay the property only if it is not a guarantee of any loan, and if the other party has given their consent, that is, they are interested in this method of paying the debt.