Liabilities are things your business has to pay, like loans, bills, and wages. Current liabilities are liabilities that are due within a year.
A liability is something you owe. Liabilities can be sorted into current, non-current, and contingent liabilities. Which category to use depends on when the liabilities have to be paid, or—in the case of contingent liabilities—whether or not they’ll come to pass.
Examples of current liabilities
Anything you have to pay within the next 12 months is considered a current liability.
Examples of current liabilities include wages that you owe to employees on a monthly basis, bills that you receive from suppliers when you buy goods or services, or consumption tax that you have to pay to the tax authorities.
Non-current liabilities are payments that aren’t due in the next 12 months. Examples include a loan you have in the bank or corporate tax, if it isn’t due within the next 12 months.
There is also a third category called contingent liabilities, which encompasses liabilities that might not occur, such as warranty claims or lawsuits.
What to do if you’re struggling to pay
If you’re struggling to pay your current liabilities, you should consider selling off current assets to free up more money.
You can also take up a loan—a non-current liability—to pay off your current liabilities, although this might not be the best long-term strategy for your business.
You can also try to reduce your costs. You can do this in many ways, for example by renegotiating deals with your suppliers, refinancing your loan, or finding free alternatives to services and software that you’re paying for today, such as free invoicing software.
You can also try raising the prices of your goods and services so that your income matches or, ideally, exceeds your costs.