# Bills Payable: Definition, Examples, and How They Differ From Accounts Payable Published: 2026-03-21 Author: Warren Team URL: https://www.heywarren.com/blog/bills-payable --- Most businesses have both accounts payable and bills payable on their balance sheets, and confusing the two leads to misreading financial statements. While both represent money owed, they carry fundamentally different legal and financial characteristics. Here's a precise breakdown of what bills payable are and how they function. ## What Is Bills Payable? Bills payable refers to written, formal promises to pay a specified amount to a creditor on a specific future date. These are also called **promissory notes payable**, **notes payable**, or simply "notes", and they represent a more formal, legally documented obligation than a standard trade payable. ![The three main forms bills payable takes on a modern balance sheet.](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20600%20211%22%20width%3D%22600%22%20height%3D%22211%22%20role%3D%22img%22%3E%3Ctitle%3EHierarchy%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Crect%20x%3D%22220%22%20y%3D%2220%22%20width%3D%22160%22%20height%3D%2258%22%20rx%3D%228%22%20fill%3D%22%232563eb%22%2F%3E%3Ctext%20x%3D%22300%22%20y%3D%2254%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22700%22%20fill%3D%22white%22%3EBills%20Payable%3C%2Ftext%3E%3Cpath%20d%3D%22M%20300%2078%20L%20300%20105.5%20L%20120%20105.5%20L%20120%20133%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%20fill%3D%22none%22%2F%3E%3Crect%20x%3D%2240%22%20y%3D%22133%22%20width%3D%22160%22%20height%3D%2258%22%20rx%3D%228%22%20fill%3D%22white%22%20stroke%3D%22%230891b2%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22120%22%20y%3D%22158%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EBank%20Notes%3C%2Ftext%3E%3Ctext%20x%3D%22120%22%20y%3D%22176%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3Epromissory%20note%20to%20lender%3C%2Ftext%3E%3Cpath%20d%3D%22M%20300%2078%20L%20300%20105.5%20L%20300%20105.5%20L%20300%20133%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%20fill%3D%22none%22%2F%3E%3Crect%20x%3D%22220%22%20y%3D%22133%22%20width%3D%22160%22%20height%3D%2258%22%20rx%3D%228%22%20fill%3D%22white%22%20stroke%3D%22%230891b2%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22300%22%20y%3D%22158%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3ETrade%20Acceptances%3C%2Ftext%3E%3Ctext%20x%3D%22300%22%20y%3D%22176%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3Eaccepted%20supplier%20bill%3C%2Ftext%3E%3Cpath%20d%3D%22M%20300%2078%20L%20300%20105.5%20L%20480%20105.5%20L%20480%20133%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%20fill%3D%22none%22%2F%3E%3Crect%20x%3D%22400%22%20y%3D%22133%22%20width%3D%22160%22%20height%3D%2258%22%20rx%3D%228%22%20fill%3D%22white%22%20stroke%3D%22%230891b2%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22480%22%20y%3D%22158%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EFormal%20Notes%3C%2Ftext%3E%3Ctext%20x%3D%22480%22%20y%3D%22176%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3Especific%20maturity%20date%3C%2Ftext%3E%3C%2Fsvg%3E) *The three main forms bills payable takes on a modern balance sheet.* The "bill" in bills payable comes from a **bill of exchange**, a historical financial instrument where a seller (drawer) wrote a formal demand for payment to a buyer (drawee) on a specific future date. When the buyer accepted the bill (by signing it), it became legally enforceable. The accepted bill was called a "trade acceptance", a formal, negotiable instrument. In modern practice, bills payable can refer to: 1. **Formal notes payable** signed by the company with a specific maturity date 2. **Bank bills**, promissory notes issued to a bank as part of a credit facility 3. **Trade acceptances**, accepted bills of exchange from suppliers ## Bills Payable vs. Accounts Payable This distinction is crucial for financial analysis: | Feature | Accounts Payable | Bills Payable | |---|---|---| | Legal form | Open account (no formal note) | Written promissory note or accepted bill | | Interest-bearing | Usually no (implicit in credit terms) | Usually yes | | Due date | Based on invoice terms (net 30, net 60) | Specific contractual date | | Negotiability | Not negotiable | Often negotiable (can be transferred) | | Balance sheet | Current liability | Current or non-current liability | | Usage | Routine trade payables from suppliers | Short-[term borrowing](/blog/term-borrowing), formal supplier credit | | Collateral | Usually unsecured | May be secured by assets | **Accounts payable** arise from routine business purchases on credit, you buy inventory, you owe the supplier. The obligation is documented by the invoice, but there's no separate promissory note. **Bills payable** arise when the company has formally promised in writing to pay a specific amount at a specific time, typically when borrowing from a bank on a short-term basis, or when a supplier requires a formal note instead of an open trade account. ## Bills Payable in Banking The most common use of bills payable in modern finance is in **bank lending**: When a company borrows money through a **promissory note** to a bank, the note is a "bill payable" from the company's perspective: - Company signs a note promising to repay $1 million in 90 days at 7% annual interest - This $1 million + [accrued interest](/blog/accrued-interest) appears as "bills payable" or "notes payable" on the balance sheet - The bank carries this as "bills receivable" or "notes receivable" on its books **Short-term notes payable** (due within 12 months) appear in current liabilities. **Long-term notes payable** appear in non-current liabilities. ## Bills Payable in Trade Finance In international trade, bills payable play a specific role: ![How a trade bill moves from exporter to accepted payable, with optional bank discounting for early cash.](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20875%20125%22%20width%3D%22875%22%20height%3D%22125%22%20role%3D%22img%22%3E%3Ctitle%3EFlow%20diagram%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Crect%20x%3D%2230%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22115%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EExporter%3C%2Ftext%3E%3Ctext%20x%3D%22115%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3Edraws%20bill%3C%2Ftext%3E%3Cline%20x1%3D%22205%22%20y1%3D%2262.5%22%20x2%3D%22237%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22244%2C62.5%20235%2C57.5%20235%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22245%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22330%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EImporter%3C%2Ftext%3E%3Ctext%20x%3D%22330%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3Eaccepts%20bill%3C%2Ftext%3E%3Cline%20x1%3D%22420%22%20y1%3D%2262.5%22%20x2%3D%22452%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22459%2C62.5%20450%2C57.5%20450%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22460%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22545%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EBills%20Payable%3C%2Ftext%3E%3Ctext%20x%3D%22545%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3Eon%20importer%20books%3C%2Ftext%3E%3Cline%20x1%3D%22635%22%20y1%3D%2262.5%22%20x2%3D%22667%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22674%2C62.5%20665%2C57.5%20665%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22675%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22760%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EBank%3C%2Ftext%3E%3Ctext%20x%3D%22760%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3Ediscounts%20bill%3C%2Ftext%3E%3C%2Fsvg%3E) *How a trade bill moves from exporter to accepted payable, with optional bank discounting for early cash.* **Documentary bill of exchange**: An exporter ships goods and draws a bill of exchange on the importer for the invoice amount. The importer: - Accepts the bill (creates a "trade acceptance") - Pays it on the due date (30, 60, or 90 days) This formal acceptance creates a legally enforceable obligation, the bills payable from the importer's perspective. The accepted bill can be: - Held by the exporter until maturity - Discounted at a bank (sold before maturity at a discount for immediate cash) This is why letters of credit and bills of exchange remain important in international trade financing, even in the digital age. ## Accounting Journal Entries ### Creating Bills Payable (Borrowing from Bank) ![Three accounting events when a company issues a 6-month promissory note to a bank.](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20800%20149%22%20width%3D%22800%22%20height%3D%22149%22%20role%3D%22img%22%3E%3Ctitle%3ETimeline%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Cline%20x1%3D%22166.66666666666669%22%20y1%3D%2255%22%20x2%3D%22633.3333333333334%22%20y2%3D%2255%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%223%22%2F%3E%3Ccircle%20cx%3D%22166.66666666666669%22%20cy%3D%2255%22%20r%3D%2224%22%20fill%3D%22white%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22166.66666666666669%22%20y%3D%2260%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2215%22%20font-weight%3D%22700%22%20fill%3D%22%230f172a%22%3E1%3C%2Ftext%3E%3Ctext%20x%3D%22166.66666666666669%22%20y%3D%22101%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2212%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EIssuance%3C%2Ftext%3E%3Ctext%20x%3D%22166.66666666666669%22%20y%3D%22119%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3ECash%20in%2C%20note%20created%3C%2Ftext%3E%3Ccircle%20cx%3D%22400.00000000000006%22%20cy%3D%2255%22%20r%3D%2224%22%20fill%3D%22%232563eb%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%223%22%2F%3E%3Ctext%20x%3D%22400.00000000000006%22%20y%3D%2260%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2215%22%20font-weight%3D%22700%22%20fill%3D%22white%22%3E2%3C%2Ftext%3E%3Ctext%20x%3D%22400.00000000000006%22%20y%3D%22101%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2212%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EPeriod%20End%3C%2Ftext%3E%3Ctext%20x%3D%22400.00000000000006%22%20y%3D%22119%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3EInterest%20accrued%3C%2Ftext%3E%3Ccircle%20cx%3D%22633.3333333333334%22%20cy%3D%2255%22%20r%3D%2224%22%20fill%3D%22white%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22633.3333333333334%22%20y%3D%2260%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2215%22%20font-weight%3D%22700%22%20fill%3D%22%230f172a%22%3E3%3C%2Ftext%3E%3Ctext%20x%3D%22633.3333333333334%22%20y%3D%22101%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2212%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EMaturity%3C%2Ftext%3E%3Ctext%20x%3D%22633.3333333333334%22%20y%3D%22119%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3E%24520K%20cash%20out%3C%2Ftext%3E%3C%2Fsvg%3E) *Three accounting events when a company issues a 6-month promissory note to a bank.* When a company issues a $500,000, 6-month note payable at 8% annual interest: **At issuance**: ``` Dr. Cash 500,000 Cr. Notes/Bills Payable 500,000 ``` **Accruing interest (end of each period)**: ``` Dr. Interest Expense 20,000 (500,000 × 8% × 6/12) Cr. Accrued Interest 20,000 ``` **At maturity (repayment)**: ``` Dr. Notes/Bills Payable 500,000 Dr. Accrued Interest 20,000 Cr. Cash 520,000 ``` ### Creating Bills Payable (Accepting a Supplier's Bill) When a supplier provides goods worth $100,000 and requires a 90-day accepted bill rather than an open invoice: **At acceptance**: ``` Dr. Inventory/Purchases 100,000 Cr. Bills Payable 100,000 ``` **At payment**: ``` Dr. Bills Payable 100,000 Cr. Cash 100,000 ``` (If the bill bears interest, accrue interest separately as above) ## Reading Bills Payable on the Balance Sheet Bills payable typically appear in two places: ### Current Liabilities Section Short-term notes payable (due within 12 months), including the current portion of long-term notes, appear here. Key figures to analyze: - **Amount**: How much is due within the year? Does the company have sufficient cash flow or credit facilities to refinance? - **Trend**: Growing bills payable relative to revenue may indicate increasing short-term borrowing dependency - **Interest rates**: Disclosed in footnotes, floating rate notes are sensitive to rate increases ### Long-Term Liabilities Section Long-term notes payable (due after 12 months) appear here. Review the maturity schedule, if a large note is due in 2 years, assess whether the company's cash generation or refinancing capacity can handle it. ## Bills Payable and the Cash Conversion Cycle Bills payable (including accounts payable) are a source of free financing for working capital. If a supplier gives you 90-day terms (or you accept a 90-day bill), that's 90 days of free financing before you must pay. **Working capital financing**: Companies strategically use extended payable terms (accounts payable and bills payable) to reduce their net working capital investment. Extending from 30-day to 60-day terms on $10 million of payables frees up $10M/12 = ~$833K of working capital per additional month. However, bills payable that are **interest-bearing** are not free financing, the interest cost must be weighed against the working capital benefit and the cost of alternative financing. ## Authoritative Sources For deeper background and primary-source data on this topic, the following authoritative sources are useful starting points: - [Financial Accounting Standards Board](https://www.fasb.org/) - [IFRS Foundation](https://www.ifrs.org/) ## Conclusion Bills payable are a formally documented obligation to pay, more legally rigorous than accounts payable and typically arising from bank borrowing or formal trade credit arrangements. On the balance sheet, they represent explicit financing commitments with defined maturity dates and often interest costs. For investors reading financial statements, distinguishing bills payable from accounts payable and noting their maturity schedules and interest terms provides insight into a company's short-term liquidity position and financing flexibility. For related financial statement topics, see our guides on [profit and loss statements](/blog/profit-and-loss-statement), [accrued interest](/blog/accrued-interest), and [deferred tax assets](/blog/deferred-tax-assets). Warren at [heywarren.com](https://heywarren.com) helps you read between the lines of any company's financial statements with AI-powered analysis. --- ## Related Reading **More from Warren**: - [Accounts Receivable: What It Is, How It Works, and Why It Matters](/blog/accounts-receivable) - [Pro Forma Invoice: What It Is, How It Differs From a Commercial Invoice, and When to Use One](/blog/pro-forma-invoice) - [Accrual Accounting vs. Cash Accounting: Key Differences and When Each Is Used](/blog/accrual-vs-cash-accounting) **Authoritative sources**: - [FASB, Accounting Standards Codification](https://asc.fasb.org/) - [AICPA, Financial Reporting](https://www.aicpa-cima.com/topic/audit-assurance/financial-reporting) - [SEC EDGAR, Company Filings](https://www.sec.gov/edgar/searchedgar/companysearch)