Accounts Payable Turnover Rate

Accounts Payable Turnover Rate

Chances are you’re purchasing supplies on credit. It’s important to keep track of your accounts payable turnover rate so you know how quickly you’re paying off your suppliers.

The accounts payable turnover rate tells you and your investors how many times per accounting period you pay your average accounts payable amount. This shows your investors how well you’re able to meet your short-term debt obligations.

Average Accounts Payable

Before you calculate your accounts payable turnover rate, you’ll calculate your average accounts payable.

If your beginning accounts payable for 2015 was $1,000 and your ending accounts payable was $4,000, your average accounts payable for 2015 was $2,500.

If your beginning accounts payable for 2016 was $4,000 and your ending accounts payable was $5,000, your average accounts payable for 2016 was $4,500.

Calculating Your Turnover Rate

Once you know your average accounts payable, you can calculate your accounts payable turnover rate.

If your total purchases in 2015 were $10,000, your turnover rate was 4 (or $10,000/$2,500). This means that your accounts payable turned over 4 times during the year.

If your total purchases in 2016 were $20,000, your turnover rate was 4.4 (or $20,000/$4,500). Your company could pay your accounts payable in a shorter period in 2016.

Average Days in Accounts Payable

If you want to express your accounts payable turnover rate in days, divide 365 days by your turnover rate.

For 2015, your turnover rate was 91 days, and for 2016, it was 83 days.