The population of Western Europe, to a greater extent than our compatriots, is familiar with this form of loan as a loan. The credit policy of any state indicates the presence within the country of firmly standing financial and credit institutions that help maintain a balance between the needs of various categories of citizens and the demand for the products of domestic enterprises.
For reasons of fairness, it is worth noting that our credit institutions are in a growth stage, but today they still do not reach the western structures of similar importance. This is manifested in a not so flexible system of lending to provincial regions in comparison with megacities and large cities. The conditions for granting loans often do not correspond to the depth of the wallet of the average citizen, a native of the working class. A small selection of loan conditions is also striking, so the purchase of, say, a car or even less an apartment with a loan becomes unlikely, and for those who dare to take such a loan, this will soon turn into a debt hole.
For any person who has decided on such a step, accounts payable is a fact that does not add optimism, since funds, as a rule, have to be repaid for a long time. For a large enterprise, accounts payable is a fat minus in the column of the balance sheet. The increase in accounts payable, indicating continuous growth of the loan, significantly reduces the financial stability of the company. Despite the fact that there are free funds that are usually taken for targeted financing of individual projects, or for closing other current debts, one should not forget that these material resources have a stamp of borrowed funds, and this instantly generates new payment obligations.
An active lending policy can be successful in cases where the organization’s capital turnover rate makes it possible to repay such loans in a timely and painless manner. Among the enterprises corresponding to this criterion can be attributed those whose products are in great demand and, accordingly, a high level of liquidity.
From the point of view of economic theory, accounts payable are funds attracted by the organization for temporary use, which, after a certain period of time, must be returned with a fixed percentage for their use to the persons from whom they were borrowed. There are several other definitions, according to which, accounts payable is a type of obligation that reflects the debt due to payment to other persons (creditors). Regardless of the various currents of economic science, the essence of the term "accounts payable" in relation to business entities, as well as to individuals, remains unchanged.
To assess the credit activity of enterprises, such indicators as the payables ratio and its turnover ratio are often used. Since this type of debt is a repayable loan, more attention is usually paid to the second indicator. In general, the accounts payable turnover ratio is an indicator of financial activity, which is calculated as the ratio of the cost of goods sold to the average annual debt on loans. A higher value of this indicator indicates that the company has a financial strength reserve in the form of tangible assets, which allows it to quickly make settlements with its suppliers.