What the ratio tells you
The ratio compares what you bought from suppliers with the average amount you owed them. A higher number means you pay suppliers more often, and a lower number means bills stay unpaid for longer. Some businesses use cost of goods sold instead of purchases, so state which version you use.
Take purchases from your records and average payables from your balance sheet, usually the opening and closing balances divided by two. To get days, divide 365 by the result.
A worked example
For illustration, a business buys $360,000 from suppliers in a year and carries average payables of $45,000. Turnover is $360,000 divided by $45,000, or 8.0. Dividing 365 by 8.0 gives roughly 46 days to pay.
BDC’s own example is similar in spirit: purchases of $100,000 and payables of $20,000 produce a turnover of 5.0, or a payment about every 73 days. The figures here are round and illustrative only.
Why higher is not always better
BDC says a healthy rate varies by industry, that companies should typically stay between eight and 10, and that anything below six may signal a business stretching payment periods to fund operations. Treat those as rules of thumb rather than limits.
A high turnover can mean you are paying early and giving up cash you could use elsewhere. A low one can mean you are using supplier credit well, or that cash is tight and bills are slipping. Late payments can damage supplier relationships and may cost you early-payment discounts or interest, depending on your terms.
What to discuss with your accountant
Ask whether your payables ledger is complete at the period end, including bills received after year end, and whether the ratio uses purchases or cost of goods sold. Bring supplier statements and payment terms.
Review the result together with accounts receivable turnover. If you collect from customers more slowly than you pay suppliers, the gap must be financed from cash or borrowing, and your forecast should show it.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.