Over the counter and Payables days: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
m (Amend link to change heading title & remove day of month from date, and categorise.)
 
imported>Doug Williamson
(Correct spelling.)
 
Line 1: Line 1:
(OTC).  
''Financial ratio analysis - management efficiency ratios.''


Direct dealing between counterparties - for example corporates and banks - which allows for tailoring of financial contracts but which also exposes the parties to credit risk.  
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.


Exchange trading is the alternative to OTC dealing. Exchange traded instruments are standardised, and less flexible, but the interposition of the exchange substantially reduces credit risk.
Payables days measures the average number of days taken to pay trade suppliers.


More specifically, this is a market for the trade of securities that are not listed on the stock exchange consisting of bilateral dealing contracts between brokers.


As opposed to an organised stock exchange, prices on the OTC markets are set by direct negotiation between dealers and not by an auction system. 


The OTC market is a market for companies which do not fulfil the listing requirements of the official stock exchange markets, or for derivatives or other financial instruments that do not have a liquid market.
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.


== See also ==
* [[Exchange traded]]
* [[Exchange-traded option]]
* [[Listing]]
* [[NASDAQ]]
* [[Security]]
* [[Stock]]


Also known as Creditor days or Days payables outstanding.


== Other links ==


[http://www.treasurers.org/otc European regulation of OTC derivatives: Implications for non-financial companies – ACT briefing note, April 2013]
== See also ==
* [[Creditors]]
* [[Debtor days]]
* [[Management efficiency ratio]]
* [[Payables management]]


[[Category:Corporate_financial_management]]
[[Category:Accounting,_tax_and_regulation]]
[[Category:Risk_frameworks]]
[[Category:The_business_context]]

Latest revision as of 11:18, 6 February 2019

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.


See also