Payables Days

Trade Payables (Creditors):

• Amounts owed by a business to suppliers and others

What does it show:

• The average length of time taken by a business to pay amounts it owes

Payables (Creditors) Days:

• (Trade payables/Cost of sales) x365

Evaluation of payable days:

• Interpreting the results:

  • In general, a higher figure is better for cash flow

  • Ideally, payable days are higher than receivable days

  • Be careful: a high figure may suggest liquidity problems (stretching supplier goodwill)

• Look out for:

  • Evidence from the current ratio or acid test ratio that business has problems paying creditors

  • Window-dressing: This is the easiest figure to manipulate