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.
A worked example
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Let's consider a real-world example of a retail business that purchases inventory on credit from its suppliers throughout the year.The business has the following figures for the year:
Total purchases: $480,000
Accounts payable at the start of the year: $40,000
Accounts payable at the end of the year: $56,000
First, calculate the average accounts payable:Average Accounts Payable = (Opening AP + Closing AP) / 2Average Accounts Payable = ($40,000 + $56,000) / 2 = $48,000Now calculate the AP turnover ratio:AP Turnover Ratio = Total Purchases / Average Accounts PayableAP Turnover Ratio = $480,000 / $48,000 = 10This means the business paid off its accounts payable 10 times during the year. To find out how many days on average it takes to pay suppliers:Days Payable Outstanding = 365 / AP Turnover RatioDays Payable Outstanding = 365 / 10 = 36.5 daysIn this example, the business is settling its supplier invoices roughly every 36 days, which falls within a standard net-30 to net-45 payment window and indicates healthy supplier payment management.