These are short-term liabilities, i.e., are payable within 12 months from the date the credit is due. We have now seen "What the Accounts Payable Turnover Ratio is?" Let's understand the term 'Accounts Payable.' What are Accounts Payable (AP)?Īccounts Payable refers to those accounts against which the organization has purchased goods and services on credit.Īccounts payable also include trade payables and are sometimes used interchangeably to represent short-term debts that a company owes. It focuses on identifying strategic opportunities, giving the company a competitive edge through sourcing quality material at the lowest cost.Ī good understanding of the AP Turnover Ratio is vital for the growth of an organization. It also measures the operating efficiency in terms of placing orders, verifying invoices, checking inventory, making payments, and taking into account the working capital management of the business for meeting current and future needs.Ī good AP Turnover Ratio also takes care of vendor relationships. It, therefore, measures short-term financial liquidity. Then, it determines the frequency of payments made by the company to its creditors.ĪP Turnover Ratio falls under the category of Liquidity Ratios as cash payments to creditors affect the liquid assets of an organization. The company calculates the ratio over a period of time, which could be monthly, quarterly, or annually. It is also sometimes referred to as the Creditors Turnover Ratio or Creditors Velocity Ratio. It calculates the rate of paying off the supplier by the company.
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