Payable Days

Accounts Payables are the debts that must be paid off with in a given period of time. It is the unpaid invoices, bills statement of goods or services rendered by the outside contractors, vendors or suppliers. There is a credit policy which agreed between the company and other party like suppliers. Accounts payables are often referred to as “Payables”. This is a ratio measures how long a company is taking to pay its trade creditors. Trade payables appears on the company‘s balance sheet under current liability section.

Paying bills on time and according to the specific terms and conditions can affect company credit ratings and ultimately business relationships. If the payable days are low it implies that the company pays its liabilities quickly. Normally it’s better to have a larger no of payable days. Because the longer company holds money before paying its bills, company could earn more money by placing money in the bank. This is only true if the company does pay its creditors. But if the company takes long time to settle the payments, the company will be considering as a not worthy company in the industry.

But there may be different terms and conditions exist in which payment for a service is expected. Such as some of the services require payment upon receipt, which means compensation is due immediately after the service is rendered. Others have 10, 30, or 90 day terms in which payment is accepted. Not only that in credit lines, where payment is due once a month, is also a standard practice.

However the accounts payable administrator should keep track of terms and conditions, whether they are following accordingly, otherwise it will create a bad impression of the company within the industry.

                    Payable Days              =           Closing trade payables x 365

         Cost of sales