Spontaneous Liabilities

Obligations that arise automatically in the course of operating a business when a firm buys goods and services on credit.

Spontaneous Liabilities

Liabilities that a person or firm acquires when buying goods or services on credit. Specifically, spontaneous liabilities are the obligations to pay for the goods or services at some point in the future.

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Next, we introduce the concept of net working capital and spontaneous liabilities. Subsequently the paper addresses elements to include in an economic analysis of potential changes in the operating cycle.

Net working capital and spontaneous liabilities now hold our attention.

Some changes also affect spontaneous liabilities. In economic analysis of decisions, we need to capture the net investment and in turn, net financing needs and opportunity cost on investment.

Spontaneous liabilities (SL) result from the automatic behaviour of certain liabilities in response to changes in operations of assets.

In NWC analysis one should consider the effects changes in operating assets will have on spontaneous liabilities such as accounts payable and hence, net working capital.

Figure 1 depicts the operating cycle we discussed in previous papers with the addition of spontaneous liabilities.