Accounts Payable Turnover
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Accounts payable turnover is a financial ratio that measures how many times a business pays off its accounts payable balance within a given period — typically a year. It tells you how efficiently a company manages its short-term liabilities and how quickly it settles debts with suppliers.
In depth
The ratio is calculated by dividing total purchases (or cost of goods sold) by the average accounts payable balance during the period. A high turnover ratio suggests the company pays its suppliers quickly, which can signal strong cash flow or conservative credit use. A lower ratio may indicate the company is taking longer to pay, either due to cash constraints or intentional use of credit terms to hold onto cash longer.
Neither a very high nor a very low ratio is inherently good — context matters. A company in a cash-rich position may choose to pay quickly to capture early payment discounts, while a growing startup may strategically extend payables to preserve runway.
Example
Let's consider a real-world example of a retail business managing its supplier payments.
Total purchases: $480,000 Average accounts payable: $48,000
AP Turnover = $480,000 / $48,000 = 10 Days Payable Outstanding = 365 / 10 = 36.5 days
This means the business pays its suppliers roughly every 36 days, which falls within a healthy payment window.