Understanding liabilities in business: Examples and tips

Every business carries liabilities—and that’s not necessarily a bad thing. In fact, growth almost always comes with some form of debt or obligation.

What matters is knowing what those liabilities are, how they affect your financial health, and how to manage them. When your assets and liabilities align with your financial capacity and business goals, you’re far less likely to run into payroll delays, compliance issues, or cash flow bottlenecks.

For finance leaders and People Ops teams working across borders, clarity around liabilities fosters sound risk management and long-term operational stability.

This guide breaks down what a liability is, outlines the types of liabilities businesses commonly face, and shares clear examples of liabilities, so that the debts or obligations of your business don’t hurt your balance sheet as you scale.

What are business liabilities?

Business liabilities are debts or financial obligations a company owes to another party. In simple terms, they represent money your business is responsible for paying, either now or in the future. Liabilities can be short-term, such as wages payable or invoices, or long-term, including loans, leases, and deferred taxes. 

On your balance sheet, liabilities appear alongside assets and equity. They’re typically categorized as current liabilities, which are due within 12 months, and non-current liabilities, which represent longer-term debts or obligations. 

Unlike everyday operating expenses, liabilities don’t immediately impact your income statement. Expenses are recorded as they’re incurred, while liabilities remain on your balance sheet until they’re settled.

And unlike broad legal or compliance risks, liabilities are concrete and measurable. They represent specific amounts your business owes, making them instantly quantifiable and critical to managing cash flow and financial health.

Types of business liabilities

Business liabilities typically fall into two main categories: current (short-term) and non-current (long-term). Both matter for assessing financial health and planning for growth. 

Some businesses may also encounter contingent liabilities—potential obligations that depend on future events—but these are treated differently and are less common in daily operations.

What are current liabilities?

Current liabilities are obligations due within one year. They show up frequently in daily operations and connect to vendor relationships, payroll, taxes, or short-term payment cycles.

Here are the essential current liabilities finance teams should track:

• Accounts payable: This represents the money you owe vendors and suppliers for goods or services already received. Accounts payable fluctuates and is one of the clearest measures of cash flow efficiency. 
• Wages payable: This refers to employee wages earned but not yet paid, including unremitted payroll taxes. Failing to track wages payable accurately can break trust throughout teams and introduce compliance risks. 
• Unearned revenue: This is revenue collected before delivering your product or service. It’s common in consulting and SaaS companies and remains a liability until the work is completed.
• Sales tax payable: This is a tax collected from customers that your company must pass on to the government. Delays in transferring these taxes can result in penalties. 
• Accrued expenses: These are expenses recognized before they’ve been officially invoiced or paid, including interest, utilities, and contractor payments. Accrued expenses help provide a complete picture of a financial reporting period.

Tracking and managing these current liabilities gives finance teams a clear view of near-term obligations, helping them meet compliance requirements and make confident decisions as the business grows.

What are non-current liabilities?

Non-current liabilities are obligations due after 12 months. They’re usually part of financial strategy, like securing long-term financing, expanding operations, or structuring tax obligations.

• Loans or bonds payable: These are long-term debts used to finance growth, equipment, or acquisitions. 
• Deferred taxes: These are income taxes owed but not yet payable. Deferred taxes come up when tax law and accounting practices recognize revenue or expenses in different periods. 
• Lease obligations: These are long-term obligations for office space or equipment. They represent future payments that appear on the balance sheet as non-current liabilities because they extend beyond a single fiscal year.

When reviewing your balance sheet, it’s important to look at how current liabilities and long-term liabilities work together. Short-term obligations—like accounts payable, accrued expenses, or notes payable coming due within the year—reveal whether your business has enough cash or current assets to meet its immediate commitments.

Long-term liabilities tell a different story: They shape your capital structure and impact future cash flows.

Financially healthy companies maintain a balance between short- and long-term debt, using liabilities to fuel growth rather than constrain it. When long-term liabilities pile up faster than assets or revenue, obligations compound, cash becomes tighter, and businesses can become more dependent on credit.

Business liabilities to avoid: 5 examples

Current and non-current liabilities can be powerful tools for growth—but only when managed well. Misguided liabilities can reduce cash flow and introduce compliance risk.

Below are common examples of business liabilities that often cause problems.

1. Misreporting payroll tax liabilities

Payroll tax liabilities are among the most highly regulated items on the balance sheet. Under-withholding or delaying payments can lead to fines, interest, and costly back taxes. For companies with global teams, the risk is even higher due to the patchwork of varying laws and requirements across countries. 

2. Failing to account for deferred revenue properly

When customers pay upfront for products or services not yet delivered, that income becomes unearned revenue—a liability. Calling it revenue too early inflates earnings and creates reporting gaps, especially if you run a subscription-based business. 

3. Taking on excessive short-term loans

Short-term loans can fill gaps in cash flow, but taking on too much of this debt and the repayment cycles and interest paid can hurt your ability to invest in long-term growth.

4. Letting vendor payments accumulate without tracking

When vendor payments aren’t closely tracked, accounts payable can build up faster than expected. Missing vendor due dates strains relationships and disrupts supply chains—plus, it can trigger late fees that eat into margins. Clear, unified accounts payable processes help keep obligations visible and prevent avoidable liabilities from undermining cash flow and profitability.

5. Misclassifying liabilities on the balance sheet

Errors in distinguishing between current vs. non-current liabilities can distort financial statements, making it more difficult to assess current financial health and build accurate forecasts. Misclassification can also impact compliance, lender agreements, and tax reporting.

Business liabilities vs. assets

Liabilities tell you what your business owes. Assets tell you what it owns. 

Assets include anything the business controls that has economic value. Think cash, equipment, accounts receivable, intellectual property, real estate, and investments. These items strengthen your financial position because they increase the resources and leverage available to run and scale your company.

By contrast, liabilities represent debts or obligations your business owes to outside parties. They appear on the balance sheet next to assets because a comparison of the two reflects a company’s true financial health. 

The relationship between the two comes down to a simple equation: assets = liabilities + equity.

This formula is the foundation of every balance sheet because it shows how a business funds what it owns, either by taking on obligations (liabilities) or through value the business creates (equity). When assets consistently outpace liabilities, your financial position grows stronger. When liabilities grow faster, cash flow tightens and risk increases.

This relationship is what gives the balance sheet its name: Assets should always be at least equal to (or balanced with) liabilities and equity taken together. 

Business liabilities vs. expenses

Liabilities and expenses both represent money leaving a company, but they serve different roles in your financial statements.

Expenses (also known as operating costs) are the costs your business incurs to operate, such as wages, utilities, software subscriptions, contractor invoices, and payroll. Expenses show up on the income statement and reduce net income for the period in which they occur. They reflect the cost of generating revenue—or the cost of doing business. 

Liabilities, on the other hand, represent obligations your business has not yet paid and remain on the balance sheet (not the income statement) until they’re settled. In many cases, an expense can become a liability if it hasn’t been paid—for example, when an invoice moves to accounts payable or earned wages become wages payable.

Here’s the easiest way to look at it:

• Expenses are the cost of doing business today. 
• Liabilities are obligations you still owe tomorrow. 

Understanding the difference between liabilities and expenses helps accounting and finance teams spot cash flow pressure early, avoid reporting errors, and make better decisions about how much and when to spend to fuel growth.

Avoid liability missteps with better global compliance

While liabilities aren’t inherently bad, mismanaging them can cause operational and compliance challenges—especially for companies with globally distributed teams. Each country has its own labor laws, tax rules, and reporting requirements, making it difficult to keep up with local regulations even with a strong compliance structure in place.

When you’re operating across borders, the way you manage and report obligations your business owes—from payroll taxes to accrued expenses—can shift from one market to the next. A missed filing deadline or a misclassified liability in a single country can create downstream effects that strain cash flow and slow growth. That’s why companies turn to local expertise for support. 

When you partner with Oyster, you reduce accounts payable and compliance-related liability risks by centralizing payroll, ensuring correct employment classification, and managing tax compliance in new markets.

Explore Oyster’s global employment solution now to keep your liabilities under control and simplify compliance as you scale internationally.

Book a demo today!

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.