Accounts Payable Turnover Ratio: Formula & Interpretation

The accounts payable turnover ratio measures how quickly a company pays its suppliers. It’s a key efficiency metric that reveals important insights about cash management, supplier relationships, and working capital strategy.

This guide covers everything you need to know about calculating and interpreting AP turnover. For more efficiency metrics, visit our main financial ratios hub.

The AP Turnover Formula

Accounts payable turnover ratio formula showing the calculation and interpretation guide

Primary Formula

Accounts Payable Turnover = Total Supplier Purchases / Average Accounts Payable

Average Accounts Payable

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

Note: When exact purchase data isn’t available, use Cost of Goods Sold (COGS) as a proxy:

AP Turnover (Alternative) = COGS / Average Accounts Payable

This approximation works well for most analyses, though it may slightly overstate or understate the true ratio depending on inventory changes.

Step-by-Step Calculation Example

XYZ Manufacturing - Year End Data:

Item	Amount
Total Purchases	$840,000
Beginning Accounts Payable	$65,000
Ending Accounts Payable	$75,000

Step 1: Calculate Average AP

Average AP = ($65,000 + $75,000) / 2 = $70,000

Step 2: Calculate AP Turnover

AP Turnover = $840,000 / $70,000 = 12.0

Interpretation: XYZ Manufacturing pays its suppliers approximately 12 times per year, or roughly once per month.

Days Payable Outstanding (DPO)

To convert AP turnover into days, use this formula:

Days Payable Outstanding = 365 / AP Turnover Ratio

Using our example:

DPO = 365 / 12.0 = 30.4 days

This means XYZ Manufacturing takes an average of about 30 days to pay suppliers.

Interpreting AP Turnover

What the Numbers Mean

AP Turnover	DPO	Interpretation
> 12	< 30 days	Paying suppliers quickly
6 - 12	30-60 days	Standard payment terms
4 - 6	60-90 days	Slower payment cycle
< 4	> 90 days	Extended payment terms or potential cash flow issues

High AP Turnover (Fast Payment)

Potential positives:

Strong cash position
Taking advantage of early payment discounts
Building excellent supplier relationships
Negotiating better prices

Potential concerns:

Not maximizing cash float
Missing opportunities to invest cash elsewhere

Low AP Turnover (Slow Payment)

Potential positives:

Effective cash conservation
Using supplier financing strategically
Strong negotiating position with vendors

Potential concerns:

Possible cash flow problems
Risk of damaging supplier relationships
May miss early payment discounts
Could indicate financial distress

Industry Benchmarks

AP turnover varies significantly by industry:

Industry	Typical DPO	Notes
Retail (grocery)	20-35 days	Fast inventory turnover requires quick payment
Manufacturing	40-60 days	Standard Net 30-60 terms
Technology	30-45 days	Varies by business model
Construction	45-75 days	Long project cycles
Large retailers	30-60 days	Leverage with suppliers

AP Turnover and the Cash Conversion Cycle

The accounts payable turnover ratio is one component of the Cash Conversion Cycle (CCC):

Cash Conversion Cycle = DIO + DSO - DPO

Where:

DIO = Days Inventory Outstanding
DSO = Days Sales Outstanding
DPO = Days Payable Outstanding

A longer DPO (lower AP turnover) reduces the cash conversion cycle, meaning less cash is tied up in operations.

Example:

Metric	Value
DIO (Inventory)	45 days
DSO (Receivables)	40 days
DPO (Payables)	30 days
Cash Conversion Cycle	55 days

This company needs to fund 55 days of operations before cash returns from sales.

Analyzing Trends

A single AP turnover calculation provides limited insight. Track the ratio over time:

Rising AP Turnover (Faster Payment)

May indicate improved cash position
Could signal stricter supplier terms
Might suggest taking early payment discounts

Falling AP Turnover (Slower Payment)

Could indicate cash conservation strategy
May signal cash flow problems
Might suggest increased negotiating power

Early Payment Discount Analysis

Many suppliers offer discounts for early payment (e.g., “2/10 Net 30” = 2% discount if paid within 10 days, otherwise due in 30 days).

Annualized benefit of taking 2/10 Net 30:

Annualized Return = (Discount / (100 - Discount)) × (365 / (Full Terms - Discount Terms))
                  = (2 / 98) × (365 / 20)
                  = 37.2%

This 37% annualized return typically makes taking the discount worthwhile unless the company has better uses for its cash.

Common Mistakes to Avoid

Using only COGS: When possible, use actual purchase data, not cost of goods sold.
Ignoring seasonality: Average AP should account for seasonal variations. Use monthly averages if available.
Not comparing to industry: A 45-day DPO might be excellent for construction but concerning for grocery retail.
Overlooking payment terms: Compare actual payment patterns to contractual terms.
Focusing solely on extending payments: Stretching payments too far can damage supplier relationships and future pricing.

Relationship to Other Ratios

AP turnover works best when analyzed alongside:

Inventory Turnover: Together they show working capital efficiency
Accounts Receivable Turnover: Completes the cash cycle picture
Current Ratio: High payables affect short-term liquidity
Free Cash Flow: AP increases provide short-term cash flow benefit

Quick Reference Summary

Metric	Formula
AP Turnover	Purchases / Average AP
Days Payable Outstanding	365 / AP Turnover
Average AP	(Beginning AP + Ending AP) / 2

Typical ranges:

AP Turnover: 6-12 times per year
Days Payable Outstanding: 30-60 days

Last updated: December 2025

Accounts Payable Turnover Ratio Formula & Calculation Guide