Accounts Payable Turnover

Quick Definition

How quickly a company pays its suppliers, indicating cash management practices and supplier relationships.

What is AP Turnover?

Accounts payable turnover shows how frequently you pay suppliers. Higher turnover means paying faster, which may build goodwill but reduces cash float. Lower turnover means stretching payments longer.

AP Turnover Strategy

Balance supplier relationships against cash management. Pay early for discounts (2/10 Net 30 offers 36% annualized return). But don't pay faster than necessary without incentive.

Cash Conversion Cycle

AP turnover is one component of the cash conversion cycle. Longer payment terms combined with faster inventory turns and collections improves working capital.

Formula

AP Turnover = Total Purchases / Average Accounts Payable

Days Payable Outstanding (DPO) = 365 / AP Turnover

Average AP = (Beginning AP + Ending AP) / 2

Example

Ecommerce company:

• Total Purchases: $500,000
• Beginning AP: $60,000
• Ending AP: $40,000

Average AP = ($60K + $40K) / 2 = $50,000

Turnover = $500K / $50K = 10x

DPO = 365 / 10 = 36.5 days average to pay suppliers

Related Terms

• Days Payable Outstanding (DPO)
  The average number of days a company takes to pay its suppliers and vendors.
• Working Capital
  The difference between current assets and current liabilities, measuring ability to fund daily operations and meet short-term obligations.
• Cash Flow
  The movement of money into and out of a business, showing actual liquidity rather than accounting profit.