How to use the accounts payable turnover calculator
- Enter your purchases from suppliers for the period. Use purchases made on credit, since those are the ones that create accounts payable.
- Enter the accounts payable at the start and at the end of the period.
- Enter the days in the period: 365 for a year, 90 for a quarter.
- Read the turnover, the days payable outstanding and the average accounts payable. Use Copy or Print to keep the result.
Formula
Average accounts payable = (starting accounts payable + ending accounts payable) / 2
Accounts payable turnover = purchases / average accounts payable
Days payable outstanding = days in the period / turnover
Some analysts use cost of goods sold in place of purchases. Whichever you pick, use the same one every time so that periods can be compared.
$240,000 of purchases
A business bought $240,000 from suppliers over a year. Accounts payable were $38,000 at the start and $42,000 at the end, so the average is $40,000. The turnover is 240,000 / 40,000 = 6 times a year.
Days payable outstanding is 365 / 6 = 60.8 days. In plain words, the business takes about two months on average to pay a supplier. If its terms say 30 days, it is paying later than agreed, and if its terms say 90, it is paying early. The ratio only becomes meaningful when you compare it with your terms and with your past periods.
What the ratio tells you
Accounts payable turnover shows how many times in a period a business pays off what it owes suppliers. A higher number means bills are paid faster, a lower number means they stay unpaid longer. Neither is good or bad on its own. Paying late can preserve cash but strain supplier relationships or lose early payment discounts, and paying early can reduce cash on hand.
Days payable outstanding turns the same idea into days, which is easier to compare with payment terms. It is one half of the cash cycle: how long you take to pay suppliers versus how long customers take to pay you.
Using it well
Compare like with like. A seasonal business can show big swings if the balance at the end of the period is unusually high or low, so averaging the start and the end is only a rough view. A monthly average of balances gives a steadier picture if you have the data.
To see the other side of the cash cycle, use the days sales outstanding calculator. The inventory turnover calculator covers stock, and the working capital calculator and cash flow forecast calculator show what payment timing does to cash.
Assumptions and limits
- Purchases are credit purchases from suppliers during the period, as you define them. They are not taken from any accounting system.
- The average is the start and end balance only. Balances in between are not considered.
- Cost of goods sold can be used in place of purchases, but it measures something slightly different.
- The result is an indicator, not a judgment of financial health.
Frequently asked questions
What is a good accounts payable turnover ratio?
There is no single good number. It depends on your supplier terms, your industry and your cash position, so compare it with your own terms and with earlier periods.
How do you calculate days payable outstanding?
Divide the days in the period by the accounts payable turnover. A turnover of 6 over 365 days is about 60.8 days.
Should I use purchases or cost of goods sold?
Purchases on credit match accounts payable most directly. Cost of goods sold is used when purchases are not known. Pick one and stay with it.
What if my average accounts payable is zero?
Then the ratio cannot be calculated, since there is nothing to divide by. The tool asks for a balance at the start or the end of the period.