Accounts Payable Turnover
A ratio measuring how quickly a company pays its suppliers.
Definition
Accounts payable turnover measures how many times a company pays off its average accounts payable balance during a period. It's calculated as: Total Purchases (or COGS) ÷ Average Accounts Payable. A higher ratio means faster payment to suppliers; lower means the company takes longer to pay.
This ratio indicates how a company manages cash and supplier relationships. Very high turnover might mean missing early payment discounts or lacking credit terms. Very low turnover could strain supplier relationships or indicate cash flow problems.
Why It Matters
AP turnover helps evaluate cash management strategy and supplier relationships. Paying too quickly might waste cash that could be used elsewhere; paying too slowly risks damaging supplier relationships or missing out on trade credit availability.
Comparing your AP turnover to your AR turnover is revealing. If you collect receivables slower than you pay payables, you're essentially financing your customers—which strains cash flow.
Examples
- 1
A company has $1M in annual purchases and average AP of $100K. AP turnover is 10x, meaning they pay suppliers about every 36 days.
- 2
A business with strong cash position speeds up payments to take 2% early payment discounts, increasing their AP turnover ratio.
- 3
Comparing ratios: a company collects receivables in 45 days (AR turnover ~8x) but pays suppliers in 30 days (AP turnover 12x), creating a cash gap.
Related Calculators
Apply this concept with our free calculators
Related Terms
Quick Navigation
Ready to put this into practice?
InvoiceLaunch automates invoicing with built-in payment terms, late fees, and more.
Get Started