Payables Turnover and Number of Days of Payables

Payables turnover is an important activity ratio, and provides a measure of how effectively a business is managing its payables.

The payables turnover ratio measures the number of times the company pays off all its creditors in one year.

For example, a payables turnover ratio of 10 means that the payables have been paid 10 times in one year. A variant of payables turnover is number of days of payables. Number of days of payables of 30 means that on average the company takes 30 days to pay its creditors.

Formulas

$Payables\ Turnover = \frac{Credit Purchases}{Average\ Payables}$