Accounts payable and the rules for its write-off

First of all, it is necessary to clearly define what accounts payable is. This concept means the total debt of an economic entity to all creditors. That is, these are the money that must be returned in full through a set period of time.

The most common accounts payable to counterparties, as a rule, suppliers of materials and raw materials, as well as buyers of finished products. There are regular obligations to the staff for the work performed.

But not always the organization can timely repay debts; In this case, the existing accounts payable significantly worsens financial performance. This is especially reflected in the level of liquidity and solvency of the enterprise, because it is by these criteria that investors judge the appropriateness of investing funds. In addition, if there is a payable on the balance sheet that was not repaid in time, the counterparty has the right to file a suit with the court. In this case, the borrower will have to pay not only the amount of the debt in full, but also the stipulated surcharges in the form of a fine, fines or penalties.

It is worthwhile to understand that prolonged non-payment of obligations to suppliers and other persons can lead to serious consequences, such as bankruptcy, that is, the company's complete inability to carry out its activities in the future. There are two ways of collecting debts: judicial and so-called claim, or extrajudicial. The first involves filing a lawsuit in court and waiting for further proceedings, and according to the second method, the parties independently decide how and in what extent accounts payable are repaid.

In accounting, there is often a situation where there remains the amount of debt that will not be returned to the creditor. Such debt must be written off and at the same time correctly displayed in the balance sheet. So, the debt can be written off only after the expiry of the limitation period. As a rule, it is established by a judicial body and is usually three years since the borrower had to fulfill the obligation in full. Usually in the contract between the creditor and the borrower the final date of repayment is indicated, then the limitation period starts from the day following that date. Previously, debt cancellation is possible only in the event of bankruptcy of the enterprise and its liquidation.

If the organization has temporary financial difficulties, it is worth notifying the lender about it. Based on the available information, restructuring of accounts payable is carried out, that is, finding a compromise and creating conditions that are as favorable as possible for the early fulfillment of obligations. Thus, the creditor can extend the loan repayment period or draw up a new schedule of 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 by another debt, that is, refinancing is carried out. This is done in order to reduce the risk of non-return and guaranteed receipt of at least part of the payment.

Separately, it is worth highlighting such ways of restructuring, as offset, innovation and compensation. Settlement of mutual claims is carried out only if the parties are bound by mutual obligations of a homogeneous nature, often monetary. If the amount of the debt of one counterparty is less than that of another, then the offset is drawn up for a smaller amount. When accounts payable are recovered through novation, the parties decide to replace the obligation with another equivalent debt. If further repayment of the debt is under a big question, then you can use the compensation. In this way, it means repaying a debt in the form of another property, asset or money. The borrower can pay the property only if it is not a collateral for any loan, and if the other party has given its consent, that is, is interested in this method of paying the debt.