Difference Between Accounts Payable vs. Notes Payable

Short-term liabilities are every business’ financial obligations to maintain proper and sustainable working capital management. A good company will always manage and hold a decent amount of working capital to run the day-to-day business operations. Accounts payables and notes payable are often used interchangeably. They are a part of current liabilitiesCurrent LiabilitiesCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They’re usually salaries payable, expense payable, short term loans etc.read more on the balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company.read more, but there is a slight difference when analyzed in-depth and individually.

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In this article, we have shown accounts payable vs. notes payableNotes PayableNotes Payable is a promissory note that records the borrower’s written promise to the lender for paying up a certain amount, with interest, by a specified date. read more in detail.

Accounts Payable vs. Notes Payable – Infographics

Here we provide you with the top 7 differences between Accounts Payable vs. Notes Payable.

Accounts Payable vs. Notes Payable – Key Differences

The critical differences between Accounts Payable vs. Notes Payable are as follows: –

  • Accounts payablesAccounts PayablesAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period.read more are basic financial obligations of a business classified as current liabilities. They generally do not involve a written agreement of a payment made within a specified period. On the other hand, Notes payablesNotes PayablesNotes Payable is a promissory note that records the borrower’s written promise to the lender for paying up a certain amount, with interest, by a specified date. read more are written promissory notesPromissory NotesA promissory note is defined as a debt instrument in which the issuer of the note promises to pay a specified amount to a party on a particular date.read more that a company receives when it borrows money from a lender, generally financial institutions and financing or credit companies.A significant 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. The credit company furnishes the funds. However, there is generally no obligation or a fixed payment term in accounts payables that the company needs to follow to make payments.Accounts payables are not formal written agreements; most of the time, they are verbal agreements between the two parties. On the contrary, notes payables are always a legal and written agreement.Accounts payables are generally due to suppliers or subcontractors; therefore, there is no legal interest on the instrument and no fixed obligation to pay. Under note payables, the instrument always bears a certain percentage of interest 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, note payables can be either current or non-current liability.Notes payable are a loansLoanA loan is a vehicle for credit in which a lender will give a sum of money to a borrower or borrowing entity in exchange for future repayment.read more that bear the payment terms, maturity dates, etc. On the other hand, accounts payables are an informal channel due to the vendorsVendorsA vendor refers to an individual or an entity that sells products and services to businesses or consumers. It receives payments in exchange for making items available to end-users. They constitute an integral part of the supply chain management for providing raw materials to manufacturers and finished goods to customers.read more and the suppliers, making the payment more flexible without formal or written agreement.

Accounts Payable vs. Notes Payable – Head to Head Difference

Let’s now look at the head-to-head differences between Accounts Payable vs. Notes Payable.

Conclusion

Accounts payables and notes payables are vital components for working capitalComponent For Working CapitalMajor components of working capital are its current assets and current liabilities, and the difference between them makes up the working capital of a business. The efficient management of these components ensures the company’s profitability and provides the smooth running of the business.read more and other short-term obligations, making the management of these two short-term obligations essential for a company to run its day-to-day business. In addition, accounts payables and notes payables are like debtDebtDebt is the practice of borrowing a tangible item, primarily money by an individual, business, or government, from another person, financial institution, or state.read more categorized under current and non-current liabilities. Therefore, Current liabilitiesCurrent LiabilitiesCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They’re usually salaries payable, expense payable, short term loans etc.read more like notes and accounts payablesAccounts PayablesAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period.read more need to be managed for efficient working capital managementWorking Capital ManagementWorking Capital Management refers to the management of the capital that the company requires for financing its daily business operations. It is important for the company in order to maximize its operational efficiency, manage its short term liabilities and assets properly, avoiding the underutilization of the resources and avoiding the overtrading, etc.read more.

Businesses need to employ specific processes to successfully manage their current obligations to succeed in the long run.

This article has been a guide to Accounts Payable vs. Notes Payable. Here, we discuss the top 6 differences between account payable and notes payable, along with infographics and a comparison table. You may also have a look at the following articles: –

  • Examples of Accounts PayableAccrued Expenses vs. Accounts PayableDeferred Tax Liabilities BasicsLong-Term Liabilities Definition