Last reviewed: July 2026.
The creditors turnover ratio is now more commonly called the trade payables turnover ratio. It measures how quickly a business pays credit suppliers. Analysts often express the same relationship as the payables payment period in days.
The ratio is useful for working-capital analysis, but it must be interpreted with supplier terms, seasonality, disputed invoices, purchasing patterns and cash-flow conditions.
Formulas
| Measure | Formula | Interpretation |
|---|---|---|
| Payables turnover | Credit purchases ÷ average trade payables | Number of times average payables are paid during the period. |
| Payables payment period | Average trade payables ÷ credit purchases × 365 | Approximate average days taken to pay suppliers. |
| Approximation when purchases unavailable | Average payables ÷ cost of sales × 365 | Use cautiously because cost of sales includes inventory effects and may differ from purchases. |
Which payables figure should be used?
Average trade payables is normally:
(Opening trade payables + Closing trade payables) ÷ 2
A monthly or quarterly average is better when the business is seasonal or the closing balance is unusual. Exclude non-trade liabilities such as tax, payroll, loans and accruals unless the purpose of the analysis clearly includes them.
Which purchases figure should be used?
Credit purchases is the conceptually appropriate denominator. Published financial statements often do not disclose it, so analysts use cost of sales as an approximation. This can distort the result because:
- cost of sales reflects opening and closing inventory;
- cash purchases may be included;
- manufacturing costs may be included;
- payables may include operating expenses outside inventory purchases;
- tax may be included in one figure but not the other.
Worked example
Opening trade payables are 80,000 CU, closing payables are 100,000 CU and annual credit purchases are 720,000 CU:
- Average payables: (80,000 + 100,000) ÷ 2 = 90,000 CU
- Payables turnover: 720,000 ÷ 90,000 = 8 times
- Payment period: 90,000 ÷ 720,000 × 365 = 45.6 days
If normal supplier terms are 30 days, the business appears to pay later than agreed. Investigation should consider disputed invoices, timing, supplier-finance arrangements and calculation limitations.
Interpretation
A longer payment period may improve short-term liquidity because the business retains cash longer. However, it can indicate cash stress, slow invoice approval or deliberate late payment. Consequences may include lost discounts, stopped supplies, reduced credit limits and damaged relationships.
A shorter period may indicate strong liquidity and efficient processing, but paying much earlier than required may sacrifice free supplier finance. The objective is controlled payment in accordance with agreed terms, not automatically the lowest or highest ratio.
Trend and benchmark analysis
Compare:
- the current period with several previous periods;
- actual days with contractual terms;
- the ratio with receivables and inventory days;
- operating cash flow and current liquidity;
- similar companies using comparable definitions.
ACCA’s ratio-analysis guidance describes the payables payment period and notes that long periods can help customer liquidity but damage supplier relationships.
Connection to the cash conversion cycle
A simplified cash conversion cycle is:
Inventory days + Receivables days − Payables days
Longer payables days reduce the calculated cycle, but an apparently favourable result created by overdue suppliers may not be sustainable.
Supplier statement reconciliation
A ratio cannot replace supplier-level controls. ACCA’s supplier-statement reconciliation guide explains why individual supplier records must be accurate. Reconcile statements, unpaid invoices, credit notes, payments and goods received.
Possible warning signs
- payment days rise while operating cash flow weakens;
- large old invoices remain disputed;
- supplier statements exceed ledger balances;
- payments are made outside approved terms;
- year-end payables are unusually low or high;
- supplier-finance balances are mixed with ordinary trade payables;
- purchases and payables use inconsistent tax treatment or currency.
Common calculation mistakes
- using total liabilities instead of trade payables;
- using closing payables when averages are available;
- mixing monthly purchases with annual days;
- using sales rather than purchases;
- treating cost of sales as exact credit purchases;
- ignoring cash purchases and non-inventory supplier balances.
Management actions
- Monitor invoices approaching due date.
- Resolve quantity, price and receipt disputes quickly.
- Separate supplier creation, invoice approval and payment release.
- Use approved payment runs and exception reports.
- Forecast cash before due dates rather than delaying without communication.
- Compare actual payment days with supplier terms by category.
Related analysis
Use the accounting ratio guide, cash-flow statement links, payables control account and bank reconciliation guide.
Supplier finance and classification
Some businesses use arrangements in which a finance provider pays suppliers and the buyer pays the provider later. These arrangements can change payment timing and may require separate presentation or disclosure depending on their terms. Do not combine supplier-finance obligations with ordinary trade payables without understanding the substance.
When such arrangements are material, compare the ratio both including and excluding the affected balances and explain the definition. The reported payment period may lengthen because financing changed, not because normal procurement efficiency improved.
Sensitivity analysis
If credit purchases are unavailable, calculate a range using cost of sales and an estimated cash-purchase proportion. For example, if cost of sales is 1,000,000 CU but estimated credit purchases range from 800,000 to 900,000 CU, present payment days under both assumptions. A range is more honest than a precise figure based on unsupported data.
Key takeaway
Payables turnover measures payment speed, not payment quality by itself. Use average trade payables and credit purchases where possible, compare the result with agreed terms and cash flow, and investigate supplier-level evidence before drawing conclusions.