Accounts Payable Turnover Ratio Template

The accounts payable turnover ratio indicates to creditors the short-term liquidity, and to that extent the creditworthiness of the company. A high ratio indicates prompt payment being made to suppliers for purchases on credit. A high number may be due to suppliers demanding quick payments, or it may indicate that the company is seeking to take advantage of early payment discounts or actively working to improve its credit rating.

A low ratio indicates slow payment to suppliers for purchases on credit. This may be due to favorable credit terms, or it may signal cash flow problems and hence a worsening financial condition. While a decreasing ratio could indicate a company in financial distress, that may not necessarily be the case. It might be that the company has successfully managed to negotiate better payment terms which allow it to make payments less frequently, without any penalty.