Accounts Payable Days Formula And Ratio

It is the ratio of Net Credit Purchases to Average Accounts Payable divided into 365 days. Accounts Payable Days Formula shows how many days a company takes to pay its bill or debts to suppliers or creditors during the accounting cycle. If a company takes too much time to pay to its suppliers, then Accounts Payable Days Ratio is not good for that company and creditors and suppliers hesitate to give loans or make purchase agreement with that company.

The formula to calculate Accounts Payable Days is shown below:

365 / (Net Credit Purchases / Average Accounts Payable)

Here Average Accounts Payable is calculated as shown below:

Opening Accounts Payable + Closing Accounts Payable / 2

For Example, if the Net Credit Purchases is Rs. 70000, Average Accounts Payable is Rs. 600000, then what is Accounts Payable Days?

Putting the value in the above formula of Payable Days, we get:

365 / (500000 / 600000) = 365 / .833 = 438 Days

Hence the company takes 438 Days to pay its bills to suppliers.

The more ratio is, the more time a company takes to pay out its bills or make payments for the Credit Purchases. However, it totally depends upon particular industry in which a company is operating. For some industries, it should be low but for others industries it is better to be high due to the burden of heavy loans given by creditors to company. So, the company needs more time to pay on due date.