Payables Turnover Ratio & Average Payment Period Calculator
Calculate accounts payable turnover and average payment period to see how quickly a business pays its suppliers.
Frequently Asked Questions
What are the payables turnover and average payment period formulas?
Payables Turnover Ratio = Net Credit Purchases ÷ Average Accounts Payable, where Average AP = (Beginning AP + Ending AP) ÷ 2. Average Payment Period = 365 ÷ Payables Turnover Ratio. Like receivables turnover and collection period, these two metrics are inverses describing the same underlying payment speed.
What if I don't know net credit purchases?
Many businesses don't separately track credit purchases, so Cost of Goods Sold is commonly used as a practical proxy, since for most companies the bulk of purchases flow through COGS. It's an approximation rather than an exact figure, but it's the standard workaround used in most ratio analysis.
What is a good average payment period?
It depends on supplier terms and industry norms, but most businesses target somewhere close to their stated payment terms — commonly 30 to 60 days. Paying meaningfully faster than required can unnecessarily tie up cash; paying much slower than agreed terms risks straining supplier relationships and losing early-payment discounts or favorable terms.
Is a longer or shorter payment period better?
It's a trade-off, not a one-directional "better." A longer payment period keeps cash in the business longer, improving short-term liquidity. But stretching payments well beyond agreed terms can damage supplier trust, forfeit early-payment discounts, and eventually lead to stricter terms or lost favorable pricing. The healthiest approach is paying close to — but not wildly beyond — agreed terms.
How does payables turnover affect cash flow?
Slower payables turnover (a longer payment period) effectively means suppliers are financing part of your operations interest-free for longer, which conserves your own cash. This is one reason payables turnover is studied alongside receivables turnover and inventory turnover as part of the cash conversion cycle.
How does this ratio relate to the cash conversion cycle?
The cash conversion cycle = Days Inventory Outstanding + Average Collection Period − Average Payment Period. A longer payment period shortens the cash conversion cycle (good for cash flow), all else equal — which is why finance teams track payables turnover alongside inventory and receivables turnover rather than in isolation.