Accounts payable days is the measure of the number of days that a company needs to pay its suppliers. If the number of days required for the payment increase from one period to the other or number of days increase from the usual number of days taken by the company for the payment this means that the company is paying its supplier in a slow mode. This means that the financial condition of the company is not healthy.
If the accounts payable days period is short that means the company is making fast payments to its suppliers. This means that either the suppliers are demanding for the fast term payments or the company is too high risk in terms of credit that suppliers don’t want to take any risk of the late or deferred payments.
In order to calculate the number of accounts payable days duration all the purchases from a certain supplier are added up that occur during that payment period. The summarized purchases are then divided by the average amount of accounts payable that are required to be paid for that accounting period. The formula of accounts payable days can be shown as under:-
Accounts Payable Days = Total Purchases from a Supplier/ Beginning Account Payable +Ending Account Payable/2
This formula actually gives us the accounts payable turnover and the turnover figure is then divided with 365 to reach on the result of accounts payable days. Some companies calculate the accounts payable day by using the cost of goods sold as numerator.
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