Cash goes out first and the expense arrives later, so prepayments are the mirror image of accounts-payable. They are usually small, but a sharp rise can indicate prepaid supplier commitments taken to secure scarce inputs.
The line rolls into expense over time, which is why a growing prepaid balance mechanically drags on change-in-working-capital even when nothing has gone wrong.
Example: Northwind Tools carries $22M of prepayments, mainly a $14M annual insurance premium paid in January and $6M of cloud licences prepaid for Northwind Cloud.
Related: current-assets, working-capital, accounts-payable, change-in-working-capital