Accounts Payable Days
Accounts Payable Days (AP Days), also referred to as Days Payable Outstanding (DPO), is a financial ratio that measures the average time a company takes to pay its suppliers or vendors for credit purchases.
What are Accounts Payable Days?
Accounts payable days (AP days) – aka days payable outstanding (DPO) – measures the average number of days a company takes to pay its suppliers. In simpler terms, it indicates how long it takes a company to settle its outstanding bills. This metric is crucial for understanding a company's cash flow management and its relationship with suppliers. AP days is calculated by dividing the average accounts payable balance over a specific period (usually a month or quarter) by the cost of goods sold (COGS) during the same period, then multiplying by the number of days in the period.
Managing AP days effectively helps businesses optimize their working capital. By delaying payments without harming supplier relationships, companies can use the cash for other operational needs. However, excessively high AP days might signal potential liquidity issues or poor financial health to suppliers and investors. Conversely, a very low AP days value might indicate missed opportunities for better cash management.
