Wiki

What are current liabilities?

Xindu Hendriks July 21, 2025

Current liabilities are part of your business’s debts: amounts you owe to external parties like suppliers, banks, or tax authorities, either short or long term. These liabilities appear on the liabilities side of your balance sheet and, together with equity, form the financial structure of your company.

Understanding what are current liabilities is crucial for managing your financial position and maintaining healthy cash flow. In this article, we explain in simple terms what liabilities are, how to recognize them on your balance sheet, and what the difference is between short-term, long-term, and subordinated liabilities.

Table of contents:

What are considered liabilities?
Where are business liabilities listed on the balance sheet?
What are subordinated liabilities?
Pros and cons of business liabilities
Manage your liabilities with Payt
Frequently asked questions about current liabilities

What are considered liabilities?

Liabilities are financial obligations your business must repay to third parties. These can be short-term (within 12 months) or long-term (more than 12 months). Examples include loans, unpaid invoices to suppliers, or tax debts.

You can calculate total liabilities using this formula: Total liabilities = Total liabilities side of the balance sheet – Equity

What are short term liabilities?

Short-term liabilities (also called current liabilities) are debts due within one year. Examples include:

Supplier invoices (accounts payable)
Tax payments
Short-term loans

Understanding what are current liabilities helps you manage liquidity. If your short-term obligations are high compared to your cash position, you could face payment challenges.

What are long term liabilities?

Long-term liabilities are obligations with a maturity of over one year. Common examples include:

Mortgage loans
Long-term bank loans
Lease payments

Long-term liabilities are often used to invest in fixed assets like buildings, machinery, or equipment. They allow for business growth but come with ongoing repayment responsibilities.

What are current liabilities on a balance sheet?

Current and non-current liabilities are listed on the liabilities side of the balance sheet. Below is an example:

Assets	Amount (€)	Liabilities	Amount (€)
Fixed Assets		Current Liabilities
Buildings	75,000	Accounts Payable	30,000
Equipment	30,000	Sales Tax Payable	10,000
Current Assets		Long-Term Liabilities
Inventory	50,000	Mortgage Loan	80,000
Accounts Receivable	30,000	Equity
Cash and Bank	15,000	Paid-in Capital	30,000
		Retained Earnings	50,000
Total Assets	200,000	Total Liabilities	200,000

What are subordinated liabilities?

Subordinated liabilities are a special category of long-term liabilities. In the event of bankruptcy, these are repaid after all other creditors have been paid. Because of this, they are often seen as a hybrid between equity and debt.
Examples include:

Subordinated loans from shareholders
Conditional family investments

The benefit of subordinated liabilities is that they may improve your solvency ratio, as other lenders consider them less risky than standard loans.

Pros and cons of business liabilities

Advantages	Disadvantages
You don’t give up ownership	Mandatory repayment and interest
Interest is often tax-deductible	Too much debt lowers your creditworthiness
Quick access to capital	Can put pressure on your liquidity position

Manage your business liabilities with Payt

Effective management of your business liabilities starts with strong control over your financial processes. The faster your invoices are paid, the easier it is to meet obligations and keep cash flow healthy. That’s where Payt comes in.

With our software, you automate your accounts receivable process — without losing the human touch in customer communication. This ensures that your invoices are paid 30–50% faster. Plus, you can save up to 80% of your time thanks to smart automation.

Curious what Payt can do for your business? Download our brochure or schedule a free demo.