What Are Bills Payable? Definition and How It Works in Banking

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Updated July 15, 2022

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Definition

Bills payable refer to short-term borrowing by banks from other banks to maintain liquidity and meet reserve requirements, or outstanding liabilities in personal finance and business accounting.

What Are Bills Payable?

Bills payable refers to the short-term borrowing of banks from other banks, where the lender is often the country's central bank. Banks will borrow money from the central bank or other banks in order to maintain reserve requirements and adequate liquidity.

Bills payable is also a synonym for 澳洲幸运5官方开奖结果体彩网:accounts payable, most often seen in the context of the U.K.

Key Takeaways

Bills payable consist of the money that a bank borrows, mainly on a short-term basis, and then owes to other banks.
Often, a commercial bank will borrow from the central bank for emergency liquidity or to meet minimum reserve requirements.
Bills payable is also a British term for accounts payable, which is a current liability on the balance sheet.

Understanding Bills Payable

In the context of banking, bills payable refers to a bank's indebtedness to other banks, usually to a 澳洲幸运5官方开奖结果体彩网:central bank such as the Federal Reserve Bank in the U.S. These are short-term interbank loans that are backed by collateral consisting of the bank's 澳洲幸运5官方开奖结果体彩网:promissory note and a pledge of government securi෴ties.

In other words, Banks borrow this money in order to maintain adequate liquidity levels. Banks are required to keep a certain amount of cash on hand (based on their loan portfolio) known as 澳洲幸运5官方开奖结果体彩网:required reserves. These reserves function as a cushion to make sure that there is enough liquid cash on hand for depositors to withdraw. If there is not enough available cash, a bank run can ensue,😼 causing the bank to go under unless emergency measures are taken.

In addition to borrowing from the central banks, banks can also borrow from other banks that happen to have 澳洲幸运5官方开奖结果体彩网:excess reserves on a given day. ♓Rather than sit on this extra cash idly, banks can lend these funds to thos☂e in need with interest. These loans (i.e., the bills payable) are then very short-term loans, often just overnight.

Bills Payable as Accounts Payable

In the context of personal finance and business accounting, bills payable may also refer to liabilities that are still outstanding, and so must be paid (such as utility bills or rent). These items are recorded as accounts payable (AP) and listed as 澳洲幸运5官方开奖结果体彩网:current liabilities on a 澳洲幸运5官方开奖结果体彩网:balance sheet.

Bills payable, then, can be contrasted with bills receivable (a.k.a., 澳洲幸运5官方开奖结果体彩网:accounts receivable), which are the funds that are owed by others to 🍒the company 🐓but not yet paid.

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A third, but less common definition of bills payable can refer specifically to short-term notes issued by a company in the form of a 澳洲幸运5官方开奖结果体彩网:bill of exchange or trade acceptance. In either case, however, these items would normally be listed under a comp♑any's accounts payable.

澳洲幸运5官方开奖结果体彩网

What Are Bills Payable?

Key Takeaways

Understanding Bills Payable

Bills Payable as Accounts Payable

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