Knowing your liabilities based on their liquidity is important for obvious reasons when you think about it. Every reasonable accountant or careful owner is interested in knowing which liabilities they are to be settling first and which still have time until the payment is due. 

Having an overview of the structure of your company’s liabilities ensures you’re also able to plan your funds accordingly. Under normal circumstances it’s not an issue however if you’re dealing with seasonal or very fluctuating cash inflows it’s crucial you understand when and what amount needs payment. Not to advertise bad payment discipline, but sometimes it’s worth keeping those big suppliers happy with correct payments made on time and keep those less important “hanging” for some time until you get enough funds to settle their balances. I’m going to stress this again, it’s not meant as entertaining bad payment discipline ideal, but merely as giving food for thought. Note here that your clients may use the same approach every now and then just as same.

When you’re most probably not dealing with fluctuating incomes, you’re still better off knowing which balances are due within next 12 months because this is what your current assets should cover – assets you should be able liquidate within the same period you’re to settle your current payables. This is called being a going concern, i.e. being able to continue in business in a foreseeable future.