The Accounts Payable Turnover is a working capital ratio used to measure how often a company repays creditors such as suppliers on average to fulfill its outstanding payment obligations. Therefore, over the fiscal year, the company’s accounts payable turned over approximately 6.03 times during the year. When analyzed together, these measurements help you make strategic decisions about your collection processes.

⃣ Prioritize Payments to Critical Suppliers

Bob’s Building Suppliers buys constructions equipment and materials from wholesalers and resells this inventory to the general public in its retail store. During the current year Bob purchased $1,000,000 worth of construction materials from his vendors. According to Bob’s balance sheet, his beginning accounts payable was $55,000 and his ending accounts payable was $958,000. The total supplier purchase amount should ideally only consist of credit purchases, but the gross purchases from suppliers can be used if the full payment details are not readily available.

Having a high AP turnover ratio is important in determining the effectiveness of your accounts payable management. It can show cash is being used efficiently, favourable payment terms, and a sign of creditworthiness. The accounts payable (AP) turnover ratio gives you valuable insight into the financial condition of your company. It is used to assess the effectiveness of your AP process and can alert you to changes needed in your financial management. A high ratio indicates that a company is paying off its suppliers quickly, which can be a sign of efficient payment management and strong cash flow. Measures how efficiently a company collects payments from its customers by comparing total credit sales to average accounts receivable.

You can use the accounts payable turnover ratio calculator below to quickly calculate the number of times in a year a company able to pay its creditors/suppliers by entering the required numbers.
Companies must weigh the benefits of early payment discounts against the value of maintaining cash reserves.
Ratios below 6 may indicate that the business is not generating sufficient revenue to meet its supplier obligations consistently.
To calculate the accounts payable turnover in days, simply divide 365 days by the payable turnover ratio.
If your business is facing challenges like slow invoice processing, frequent payment delays, or difficulty meeting DPO targets, trust HighRadius to help you optimize your AP turnover ratio.
In the vast landscape of business operations, many factors contribute to a company’s success and financial health.
Here’s what you need to know about the accounts payable turnover ratio, including how to calculate it.

You can use the accounts payable turnover ratio calculator below to quickly calculate the number of times in a year a company able to pay its creditors/suppliers by entering the required numbers. The accounts payable turnover ratio of a company is often driven by the credit terms of its suppliers. For example, companies that obtain favorable credit terms usually report a relatively lower ratio. Large companies with bargaining power who are able to secure better credit terms would result in lower accounts payable turnover ratio (source). Accounts receivable turnover shows how quickly a company gets paid by its customers while the accounts payable turnover ratio shows how quickly the company pays its suppliers. The AP turnover ratio, on the other hand, calculates how many times a company pays its average accounts payable balance in a period.

How to improve your AP turnover ratio

A low ratio may indicate issues with collection practices, credit terms, or customer financial health. Regularly reviewing supplier agreements and payment behaviors helps ensure your AP practices are supporting—not hindering—your cost control and relationship management goals. Your turnover ratio is often influenced by how well supplier terms are negotiated and managed.

How can accounts payable software help with the AP turnover ratio?

With intelligent exception handling, the system quickly identifies and routes discrepancies for resolution, minimizing invoice aging and ensuring payments are made within optimal timeframes.
But in the case of the A/P turnover, whether a company’s high or low turnover ratio should be interpreted positively or negatively depends entirely on the underlying cause.
Strategic optimisation of the accounts payable turnover ratio requires balancing multiple competing factors.
Accounts receivable turnover shows how fast a company received payments from its customers while accounts payable turnover shows how rapidly the company pays its suppliers.
Moreover, the “Average Accounts Payable” equals the sum of the beginning of period and end of period carrying balances, divided by two.

The modern interpretation of this ratio incorporates factors beyond mere payment timing, including supplier relationship management, cash flow optimisation, and strategic use of payment terms. This evolution reflects the growing complexity of global supply chains and the increasing importance of working capital management in corporate strategy. AI-driven invoice data capture reduces manual entry time and errors, enabling faster invoice approvals and payment processing—leading to quicker turnover of accounts payable.

Consistent performance against targets

Accounts payable are the amounts a company owes to its suppliers or vendors for goods or services received that have not yet been paid for. You can calculate your AP turnover ratio for any accounting period that you want—monthly, quarterly, or annually. Many businesses calculate AP turnover ratios monthly and plot the results on a trendline to see how their ratio changes over time. Analysts can predict turnover rates by analyzing past performance and the projected efficiency increases from changes to the payables process. The expected ratio, when combined with sales projections, aids in estimating future payables balances and supplier payments. When the AP turnover ratio is measured over time, a declining value means that a business is paying its suppliers later than it was in the past.

Payables Turnover Ratio vs. Days Payable Outstanding (DPO)

You should also take into consideration the accounts payable turnover ratio industry average for the industry you work in. Accounts receivable turnover shows how fast a company received payments from its customers while accounts payable turnover shows how rapidly the company pays its suppliers. To improve your AP turnover ratio, consider negotiating better payment terms with suppliers, streamlining the accounts payable process, how to deduct personal appearance expenses and ensuring timely payments to avoid late fees.

What does the AP turnover ratio mean?

Credit purchases are those not paid in cash, and net purchases exclude returned purchases. Current assets include cash and assets that can be converted to cash within 12 months. This means that you effectively paid off your AP balance just over seven times during the year. In certain instances, the numerator includes the cost of goods sold (COGS) instead of net credit purchases. Learn what payment gateways are, how they work and how they serve you and your customers.

One important metric you should track to gauge the health of your accounts payable process is the accounts payable turnover ratio. In this guide, we’ll break down everything you need to know about the accounts payable turnover – from what it is to how to calculate and improve it. Like all key performance indicators, you must ensure you are comparing apples to apples before deciding whether your accounts payable turnover ratio is good or indicates trouble. If you decide to compare your accounts payable turnover ratio to that of other businesses, make sure those businesses are in your industry and are using the same standards of calculation you are. A bigger concern, though, would be if your accounts payable turnover ratio continued to decrease with time.

How to improve the Accounts Payable Turnover Ratio?

The inventory calculate the debt service coverage ratio paid for at the time of purchase is also excluded, because it was never booked to accounts payable. Creditors are also parties – typically suppliers – to whom the company owes money. Hence, the creditors turnover ratio also gives the speed at which a company pays off its creditors. A decline in the AP turnover ratio may also be related to more favorable credit terms from suppliers. In some instances, a business can negotiate payment terms that allow the business to extend the period of time before invoices are paid.

The figure for net credit purchases is often not very easy to discover because such information is not always available in the financial statements. The AP turnover ratio formula is relatively simple, but an explanation of how it’s used to calculate AP turnover ratio can make the metric even clearer. The 91 days represents the approximate number of days on average that a company’s invoices remain outstanding before being paid in full. The A/P turnover ratio and the DPO are often a proxy for determining the bargaining power of a specific company (i.e. their relationship with their suppliers).

When a company has a high turnover rate, which creditors and investors would consider a positive development, the solvency definition ratio may be limited. If the ratio is noticeably higher than that of competing businesses in the same sector. It could be a warning that the business is not properly managing its capital or making investments in the future. The concept of accounts payable turnover has transformed significantly with the advent of digital transformation and automated financial systems.

While this fosters supplier trust, it could also mean you’re not fully leveraging available payment terms—possibly sacrificing working capital flexibility. In other words, your business pays its accounts payable at a rate of 1.46 times per year. In summary, both ratios measure a company’s liquidity levels and efficiency in meeting its short-term obligations. They may be referred to differently depending on the region, industry, or even within different sectors of some companies, but they denominate the same financial metric.