But AP turnover goes deeper than that.īy factoring in your average AP balance, not just your total payables, AP turnover measures whether you’re staying right on top of your payables or letting that total creep upward. How do you calculate accounts payable turnover?Īt first glance, it might sound like any company that’s paying its bills on time will have a one-to-one ratio between obligations and outflows - it’s paying as much as it owes. Large suppliers may also use it if they’re considering letting your business pay over time.Banks and credit card companies can use it to decide whether they’re willing to offer a line of credit, and on what terms.Corporate finance teams can also use it as an early warning sign of cash flow problems, making sure they’ll have enough cash to meet their short-term obligations.It’s a good measure of short-term liquidity and your company’s financial condition. Companies can track their AP turnover rate to make sure they’re paying their bills on time.It looks specifically at the AP account in your company’s accounts. What is accounts payable turnover?Īccounts payable turnover is an accounting metric that compares the payments you made on your accounts payable (AP) to your average AP balance during a given time period. This article lays out what accounts payable turnover is, how to measure it, and why today’s metric-savvy accounting teams keep such a close eye on it. It measures how quickly a business makes payments to creditors and suppliers. A company's accounts payable turnover rate is a a key measure of back-office efficiency and financial health.
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