- Accounts Payable Days (AP Days)

Create Data Mash Calculation with this Formula:

(Total Accounts Receivable / Total Income) * 365

Definition:

The accounts payable days formula measures the number of days that a company takes to pay its suppliers. If the number of days increases from one period to the next, this indicates that the company is paying its suppliers more slowly, and may be an indicator of worsening financial condition. A change in the number of payable days can also indicate altered payment terms with suppliers, though this rarely has more than a slight impact on the total number of days, since the terms must be altered for many suppliers to alter the ratio to a meaningful extent.

If a company is paying its suppliers very quickly, it may mean that the suppliers are demanding fast payment terms, either because short terms are part of their business models or because they feel the company is too high a credit risk to allow longer payment terms.

To calculate accounts payable days, summarize all purchases from suppliers during the measurement period, and divide by the average amount of accounts payable during that period.

Tip: What does a low or high ratio mean?

A low AP ratio tells suppliers that the company pays its bills frequently and regularly. It implies that vendors will get paid back quickly. Paying too quickly might negatively impact cash flow.

Higher AP ratios indicate a possible cash flow problem in the company and may lead to unfavorable credit terms in future negotiations with vendors. "Stretching" AP days is a tactic employed to smooth seasonality or cash flow issues on a short term basis.