The formula
Accounts payable turnover answers one question: how many times a year do you pay everything you owe your suppliers. Divide cost of goods sold by average accounts payable. A turnover of 6.00x means suppliers are paid six times a year, on average, and the money sits in payables for 60.83 days between purchases.
Step 1 — Find the cost of goods sold
Start with the cost of goods sold: the cost of the goods the business sold in the period, from the income statement. Use cost of goods sold when you have it; purchases work when you do not — never revenue, because revenue is what you sell, not what you owe. On the worked example the cost of goods sold is $900,000.00.
Step 2 — Find the average accounts payable
Now find the average accounts payable: the money the business still owes its suppliers, from the balance sheet. Average accounts payable is (opening payables + closing payables) ÷ 2 — the payables at the start plus the payables at the end, divided by two. On the worked example the average accounts payable is $150,000.00.
Step 3 — Divide the costs by the payables
Divide the cost of goods sold by the average accounts payable: how many times the payables turn over in the period. On the worked example it is $900,000.00 ÷ $150,000.00 = 6.00x.
Step 4 — Work out the days to pay
Divide the days in the period by the turnover to get the days to pay — how long, on average, a dollar of costs waits before the supplier is paid. On the worked example it is 365 ÷ 6.00 = 60.83 days.
Step 5 — Work out the payables the target needs
Divide the cost of goods sold by the target turnover. For an 8.00x target, the average accounts payable needed is $900,000.00 ÷ 8 = $112,500.00. That is the payables figure the business would need to reach an 8.00x turnover on the same costs — $37,500 less than the $150,000.00 it owes now.
Step 6 — Work out the costs the target needs
Multiply the average accounts payable by the target turnover. For an 8.00x target, the cost of goods sold needed is $150,000.00 × 8 = $1,200,000.00. That is the smallest whole-dollar cost of goods sold for the turnover to reach 8.00x on $150,000 of payables — at $1,199,999 the costs are $1 short of the $1,200,000 needed, and the unrounded turnover is 7.999993, which displays as 8.00x after rounding.
Step 7 — Check the result against the 5x typical line and the 3x slow line
A turnover of 5 to 10x a year is typical for many businesses, about 36 to 73 days to pay, and a turnover below about 3x — over 120 days to pay — usually signals cash trouble or disputed invoices worth chasing. On the worked example the turnover is 6.00x, so the business sits inside the typical line, paying suppliers about every two months.
Three worked examples
The headline example: $900,000.00 of cost of goods sold and $150,000.00 of average accounts payable over 365 days. The turnover is $900,000.00 ÷ $150,000.00 = 6.00x, the days to pay are 60.83 days, the payables needed for the 8.00x target are $112,500.00, and the costs needed are $1,200,000.00. The target example: what the business must do to reach 8.00x. It can cut its average payables to $112,500.00, or raise its cost of goods sold to $1,200,000.00 — either route lands on the same 8.00x turnover. The reverse example: how much must it buy on credit. The smallest whole-dollar cost of goods sold for the turnover to reach 8.00x on $150,000 of payables is $1,200,000.00; at $1,199,999 the costs are $1 short of the $1,200,000 needed, with an unrounded turnover of 7.999993. Use the accounts payable turnover calculator for your own numbers.
One reverse to check your answer
The smallest whole-dollar cost of goods sold for the turnover to reach 8.00x is $1,200,000 — at $1,200,000 the turnover is 8.00x; at $1,199,999 the costs are $1 short of the $1,200,000 needed, with an unrounded turnover of 7.999993, which displays as 8.00x after rounding.
What average accounts payable is, and why it is an average
Average accounts payable is (opening accounts payable + closing accounts payable) ÷ 2: the payables at the start plus the payables at the end, divided by two. A single end-of-period snapshot misleads: a business that buys heavily in December and pays in January would show huge payables in December and small ones in February, and neither snapshot is the year. The average is steadier, because payables swing through the year.
What a high turnover means — and what a low turnover means
A high turnover means you pay suppliers fast and use little supplier credit. That is good for relationships, but you may be missing early-payment discounts and the free financing that longer terms give. A low turnover means you stretch supplier credit and keep more cash on hand — but it can strain supplier relations, cost you late fees, and, below about 3x — over 120 days to pay — usually signals cash trouble or disputed invoices worth chasing. Retail businesses often run higher because they turn stock fast; construction and manufacturing often run lower because invoices are large and payment terms are long.
What to do when the turnover is low
A turnover below about 3x means each dollar of costs takes more than four months to reach the supplier. Lift it by negotiating longer payment terms with key suppliers, taking early-payment discounts when cash allows, and scheduling payments weekly instead of letting invoices pile up. The cost of goods sold needed for an 8.00x turnover is $1,200,000.00 — every dollar of costs above that line pulls the turnover up, and every dollar of payables below the $112,500.00 target does the same.
How accounts payable turnover differs from inventory turnover, days payable outstanding and accounts receivable turnover
Inventory turnover divides cost of goods sold by average inventory: it tests how fast STOCK sells, not how fast you pay. Days payable outstanding is the same idea in days: it tests how fast you pay suppliers, and 365 ÷ turnover is the DPO. Accounts receivable turnover is the mirror image: it tests how fast customers pay you, while accounts payable turnover tests how fast you pay suppliers. See the inventory turnover calculator and the days payable outstanding calculator, and the guide to calculating days payable outstanding.