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Payables Turnover Calculator

Enter annual purchases and average accounts payable to get the payables turnover ratio and DPO.

Result

8.00
45.63 days

How it is calculated

The payables turnover ratio is turnover = purchases ÷ average accounts payable. Days payable outstanding follows from it: DPO = 365 ÷ turnover. Purchases are the amount bought from suppliers on credit over the period, or cost of goods sold if purchases are not available. Average payables is normally (opening balance + closing balance) ÷ 2, which you work out yourself and enter. Purchases cannot be negative, average payables must be above zero, and if purchases are zero the tool gives no result. The ratio and DPO assume a full year of 365 days, so enter yearly purchases. A higher ratio and a lower DPO mean suppliers are paid faster.

Worked example

Annual purchases are 1,200,000 and average accounts payable is 150,000. Turnover: 1,200,000 ÷ 150,000 = 8.00 times a year. DPO: 365 ÷ 8 = 45.63 days. On average the company takes about 46 days to pay its suppliers.

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Common mistakes

  • Using year-end payables instead of the average. If payables grew a lot during the year, the year-end figure understates the ratio.
  • Mixing periods, for example quarterly purchases with a 365-day DPO. The days figure will be roughly four times too large.
  • Using sales as the numerator. The ratio compares what you buy from suppliers, not what you sell to customers.
  • Using COGS when purchases are available (or the other way round) and then comparing with another company that used the opposite basis.
  • Reading a very high turnover as always good. It may mean you are giving up the cash benefit of longer supplier terms.

Sources

About this calculator

This calculator computes the accounts payable turnover ratio, purchases (or COGS) ÷ average accounts payable, showing how many times a company pays off its supplier balance over a period, then converts it into days payable outstanding (DPO = 365 ÷ turnover) — the average number of days it takes to pay invoices.

CFOs and credit analysts use it to judge whether a company is paying suppliers promptly or stretching payment terms to conserve cash, and comparing DPO against a company's days sales outstanding and inventory days builds the full cash conversion cycle — how long cash is tied up before it comes back in.

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  • Editorial team

    Compare the DPO with the payment terms your suppliers actually give. A DPO of 46 days against net-30 terms suggests invoices are paid late, while the same figure against net-60 terms suggests early payment. Also, an average of only two year-end balances can hide seasonal swings, so a business with a peak season may do better with monthly balances. What terms do your suppliers offer?

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