Accounts payable turnover ratio: What it is, formula, and examples

Keeping track of how and when your business pays its suppliers is essential for managing cash flow. 

One key metric that helps your team assess payment efficiency is the accounts payable turnover ratio, which measures how often your company settles its supplier invoices over a given period.

This guide covers what the accounts payable turnover ratio is, how to calculate it, and how to use it to strengthen financial management.

What is accounts payable (AP) turnover ratio?

The accounts payable turnover ratio shows how often your company pays its suppliers over a specific period. 

It’s a key indicator of how well your team manages short-term obligations and vendor relationships.

A higher AP turnover ratio means suppliers are paid quickly, which can signal strong liquidity but might also mean missed opportunities to optimize cash flow. 

A lower ratio indicates slower payments, which can help with cash flow but may put strain on supplier relationships.

Tracking this ratio makes sure your team maintains financial stability while balancing cash flow and vendor trust.

How to calculate AP turnover ratio

To calculate the accounts payable turnover ratio, you’ll need two key figures:

Total cost of goods sold (COGS) or total purchases

This represents how much a company has spent on goods and services during a period.

Average accounts payable

This is the average of accounts payable at the beginning and end of the period.

Accounts payable turnover ratio formula

Understanding the formula is the first step in using the accounts payable turnover ratio effectively. 

AP turnover formula

AP Turnover Ratio = Total COGS or Total Purchases / Average Accounts Payable

To see this formula in action, here’s a real-world example.

AP turnover ratio example

Imagine you’re managing the accounting for a company that manufactures medical equipment. 

To keep operations running smoothly, you need to track how efficiently the company pays its suppliers.

Here’s a snapshot of your financial data:

• Cost of goods sold (COGS): $1,000,000
• Beginning accounts payable: $100,000
• Ending accounts payable: $120,000

Step 1: Calculate average accounts payable

Since accounts payable fluctuates throughout the year, using the average accounts payable provides a more accurate picture. 

The formula is:

Average AP = (Beginning AP + Ending AP) / 2

Plugging in the numbers:

Average AP = (100,000 + 120,000) / 2 = 110,000

Step 2: Apply the accounts payable turnover formula

Now, use the AP turnover ratio formula:

AP turnover ratio = 1,000,000 / 110,000 = 9,09

An AP turnover ratio of 9.09 means the company pays its suppliers about 9 times per year. 

By tracking this ratio over time, your team can find the right balance—making sure suppliers are paid on time while keeping enough cash available for other business needs.

Analyzing your accounts payable ratio

Once you’ve calculated your AP turnover ratio, the next step is understanding what the number means for your business.

AP turnover ratio and invoice payment terms

If your AP turnover ratio is high, it means you’re paying invoices quickly. 

This could be a sign of financial strength but might also indicate that you’re missing opportunities to extend payment terms strategically.

On the other hand, a low AP turnover ratio suggests your business takes longer to pay suppliers. 

While this can help with cash flow, it’s essential to maintain positive supplier relationships to avoid disruptions.

AP turnover ratio vs. accounts receivable (AR) turnover ratio

Your AP turnover ratio tells you how quickly you pay suppliers, while the accounts receivable turnover ratio tells you how quickly customers pay you. 

If your AP turnover is much lower than your AR turnover, it might indicate a red flag. 

This means you’re collecting cash from customers quickly but delaying payments to your suppliers, which might suggest your business is holding onto cash to cover other expenses. 

While this can help in the short term, it may also point to a cash flow issue—especially if you’re struggling to pay bills on time or relying heavily on incoming payments to stay afloat. 

Keeping these two ratios in balance helps maintain healthy cash flow and supports stronger relationships on both sides of the ledger. 

AP turnover ratio and inventory turnover ratio

If you’re managing an inventory-heavy business, the inventory turnover ratio is another key metric to keep an eye on. 

It measures how often your business sells and replaces inventory over a given period, helping you understand how efficiently you’re managing stock levels. 

This ratio goes hand in hand with your accounts payable (AP) turnover ratio. 

If your AP turnover ratio is much lower than your inventory turnover ratio, it could mean you’re paying for inventory faster than you’re selling it. 

That’s not always ideal—it can create a mismatch between cash going out and revenue coming in, putting unnecessary pressure on your cash flow. 

AP turnover ratio trends and industry benchmarks

AP turnover ratios can vary significantly across industries, depending on how goods or services are delivered, how inventory is managed, and what supplier terms are standard in the field. 

For example:

Manufacturing and construction

These industries benchmarking reports often show they have lower AP turnover ratios due to longer project timelines, bulk material purchases, and extended payment agreements with suppliers. 

It’s common to see suppliers offer 60- or even 90-day terms to accommodate complex production cycles.

Retail and hospitality

In fast-moving sectors like retail and hospitality, higher AP turnover ratios are more typical. 

Businesses in these industries need to replenish stock or supplies frequently to keep up with customer demand—whether it’s food and beverage in a hotel or clothing in a fashion store—so they pay vendors more regularly to keep things running smoothly.

Healthcare

Healthcare providers often deal with a large volume of regular purchases—from medical equipment to pharmaceuticals—which means AP processes need to be both fast and efficient. 

While payment cycles might vary based on supplier contracts, healthcare organizations aim for a balanced AP turnover ratio to ensure critical supplies are never delayed. 

Using healthcare benchmarking reports helps finance teams compare their AP turnover ratio to industry norms and spot areas for improvement in vendor management and payment practices.

Technology and SaaS

Tech companies and SaaS providers often have more predictable, subscription-based revenue but may pay vendors for services, licenses, and infrastructure. 

Their AP turnover ratios depend heavily on contract terms and how they manage operating expenses.

How AP turnover ratio benchmarking supports decision-making

By comparing your AP turnover ratio to industry benchmarks, you can get a clearer sense of how your business stacks up against others in your sector. 

This helps you understand whether your current payment practices are effective—or if there’s room for improvement. 

Here’s what benchmarking your AP turnover ratio can help you do:

Evaluate if your payment cycle is competitive

See whether you’re paying suppliers faster or slower than similar businesses. 

Identify opportunities to improve payment practices

If your ratio significantly deviates from the industry average, it could indicate inefficiencies—such as missed early payment discounts or delayed invoice processing—that are affecting your cash flow. 

Inform strategic decisions

Understanding how others in your industry manage payments can guide decisions around negotiating better supplier terms, extending or shortening payment cycles, or streamlining internal AP processes.

Support long-term financial planning

Benchmarking provides a baseline for tracking improvements over time and aligning your AP strategy with broader business goals. 

How can you transform AP turnover ratio to days payable outstanding (DPO)

The AP turnover ratio measures how often your business pays suppliers in each period, but it doesn’t directly show how long it takes to settle invoices. 

That’s where days payable outstanding (DPO) comes in.

DPO helps you understand the average number of days your business takes to pay its suppliers. 

It’s directly related to the AP turnover ratio—a higher AP turnover ratio means a lower DPO (faster payments), while a lower AP turnover ratio results in a higher DPO (slower payments).

Formula for DPO:

DPO = 365 / AP turnover ratio

Using our earlier example:

DPO = 365 / 9.09 = 40.1 days

This means the company takes around 40 days to pay suppliers.

What is a good AP turnover ratio in DPO?

For your business, a days payable outstanding (DPO) between 30 and 60 days is generally considered healthy. 

However, the ideal range depends on your industry and cash flow strategy. 

While extending payment terms can help preserve cash, it’s important to balance this with maintaining strong supplier relationships to avoid late fees or supply chain disruptions.

Increasing or decreasing AP turnover ratio: which one is better

Trying to decide whether your business should aim for a higher or lower accounts payable (AP) turnover ratio? 

The right approach depends on your financial strategy and cash flow needs.

Increasing accounts payable turnover ratio

A higher AP turnover ratio means your business is paying suppliers more frequently. This can be beneficial in certain situations, especially if you want to:

• Improve supplier relationships by making timely payments.
• Take advantage of early payment discounts to save money.
• Reduce the risk of late fees or penalties.
• Strengthen creditworthiness by demonstrating reliability to lenders and vendors.

However, paying suppliers too quickly could limit your working capital, so it’s important to strike the right balance.

Decreasing accounts payable turnover ratio

A lower AP turnover ratio means your business takes longer to pay suppliers, which can free up cash flow for other investments. 

If you’re considering this approach, here are some ways to do it effectively:

• Negotiate longer payment terms with suppliers to extend due dates.
• Avoid penalties for late payments by staying within agreed terms.
• Ensure cash is allocated wisely, such as investing in growth opportunities.

While a lower AP turnover ratio can help with cash flow, delaying payments too much might strain supplier relationships or result in stricter credit terms.

There’s no one-size-fits-all answer—your ideal AP turnover ratio depends on your industry, supplier agreements, and overall financial strategy. 

The key is to align your payment practices with your cash flow goals while maintaining strong relationships with vendors.

Importance of accounts payable turnover ratio

Tracking your AP turnover ratio is essential for keeping your business financially stable and making informed financial decisions. 

Here’s why it matters:

Cash flow management

AP helps to make sure you’re balancing outgoing payments with incoming revenue.

Supplier relationships

Paying on time strengthens vendor partnerships and can lead to better payment terms.

Financial health indicator

A sudden change in this ratio could signal cash flow issues or liquidity concerns.

Effective operations

Benchmarking your AP turnover ratio against current industry standards helps identify whether your business is keeping pace. 

Falling behind industry standards may be a sign that something isn’t working as well as it should—like slow processes or gaps in your workflow—that could be improved to boost performance. 

Prompt detection of financial risks

Keeping an eye on your AP turnover ratio over time helps spot warning signs early, so you can act before small issues turn into bigger problems. 

How to track your accounts payable turnover ratio

Consistently tracking your AP turnover ratio helps your business identify trends and make informed financial adjustments. 

Here are some effective ways to monitor it:

• Use accounting software to automate calculations and generate accurate financial reports.
• Track monthly or quarterly trends to keep an eye on how your ratio changes over time to spot patterns or unusual shifts in payment behavior.
• Benchmark against industry standards to see how your business stacks up and adjust strategies accordingly.
• Define key performance indicators (KPIs) tied to your AP turnover ratio, so you can measure progress and set realistic goals.
• Schedule regular check-ins to review your AP ratio and related metrics. Bring in key stakeholders to discuss what’s working and where improvements can be made.
• Use financial dashboards to get a clear, comprehensive view of your business’s financial health. They make it easy to track your AP turnover ratio alongside other key metrics, helping you see the bigger picture and make informed decisions.

Tips to improve accounts payable turnover ratio

Looking to better manage your AP turnover ratio? Here are some actionable tips:

1. Negotiate favorable payment terms

Work with suppliers to extend due dates when needed. 

This gives your business more flexibility without risking late payments. 

2. Improve invoice processing efficiency

Use accounting software to streamline approvals and avoid delays that can throw off your payment schedule.

3. Monitor cash flow regularly

Keep a close eye on your cash position so you can plan payments strategically and avoid unnecessary bottlenecks.

4. Take advantage of early payment discounts

If cash flow is allowed, paying invoices ahead of schedule can reduce costs and build goodwill with suppliers.

5. Set up payment reminders

Use your accounting software to create reminders for upcoming payments. This helps prevent late payments and any associated penalties.

6. Review and renegotiate supplier contracts

Regularly revisit supplier agreements to make sure your business continues to receive the most favorable terms. 

If not, it might be time to negotiate.

7. Keep communication open with suppliers

Stay in touch with vendors, especially if you anticipate any delays. Clear communication helps maintain trust and avoids misunderstandings.

Optimize your AP turnover ratio with accounts payable automation software

Understanding how to calculate, interpret, and optimize the accounts payable turnover ratio helps improve cash flow, strengthen vendor relationships, and support smarter financial decisions. 

Whether your goal is to increase, decrease, or balance your AP turnover ratio, tracking trends and using automation software can make the process much easier.

Looking to streamline your AP management? 

Accounts payable software can help by:

• Automating invoice approvals to prevent delays and reduce manual errors.
• Auto-matching invoices with purchase orders and receipts, ensuring accuracy and saving time on reconciliation.
• Providing real-time insights into AP trends and metrics, including turnover ratio and DPO.
• Offering payment flexibility, such as scheduling payments, splitting invoices, or managing early payment discounts.
• Processing payments across multiple entities or business units, simplifying operations for growing or multi-location companies.
• Integrating seamlessly with your accounting or ERP software, so everything stays connected and easy to manage.