What Is the Difference Between Payables and Receivables?

Payables are amounts a business owes to others; receivables are amounts others owe to the business. Both usually arise when goods or services are bought or sold on credit, meaning payment happens later.

Payables

A trade payable is an amount the business must pay a supplier for a credit purchase. It is a current liability because the business has an obligation to pay it. Paying the supplier will cause cash to leave the business.

Receivables

A trade receivable is an amount a customer must pay the business for a credit sale. It is a current asset because the business expects to collect the money. When the customer pays, cash enters the business.

In this context, current means expected to be settled in the short term. Calling a payable a liability and a receivable an asset describes the business's position, not the supplier's or customer's position.

Worked Example

Suppose a retailer buys stock worth £500\pounds 500£500 from a supplier on credit. The retailer has a trade payable of £500\pounds 500£500 until it pays the supplier.

The retailer also sells goods worth £300\pounds 300£300 to a customer on credit. It has a trade receivable of £300\pounds 300£300 until the customer pays. These are separate amounts: the retailer owes the supplier, while the customer owes the retailer.

The distinction matters for cash flow. A business may record a credit sale before it receives the cash, yet still need to pay its suppliers. If the customer has not paid when the retailer's supplier bill is due, the retailer needs enough cash from elsewhere to pay it. Comparing receivables with payables helps explain why a profitable business can still face cash-flow pressure: sales do not always bring in cash immediately.

Common exam mistake: do not describe receivables as money the business already has in its bank account. They are amounts it is waiting to collect.