Payables days
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Financial ratio analysis - management efficiency ratios.
Payables days are a working capital management ratio calculated by dividing accounts payable outstanding at the end of a time period by the average daily credit purchases for the period.
Payables days measures the average number of days taken to pay trade suppliers.
For example: a company has an average of £50,000 of payables over a year in which the cost of goods sold was £400,000.
The payables days are:
(50,000 / 400,000) X 365
= 45.6 days
A higher number is generally perceived as better, but a business needs to maintain the goodwill of its suppliers and shorter payment terms may therefore be necessary.
Also known as Creditor days or Days payables outstanding.
