How to calculate accounts payable, AP turnover and days payable outstanding
For controllers, FP&A analysts and small business owners: the three accounts payable calculations that matter, worked examples you can copy, and how to read the results.
Key takeaways
- The accounts payable balance is the total of unpaid supplier invoices. Over a period: ending AP = beginning AP + credit purchases − payments to suppliers.
- AP turnover ratio = credit purchases ÷ average accounts payable, where average AP is (beginning + ending) ÷ 2. It shows how many times you pay off your payables in a period.
- Days payable outstanding (DPO) = 365 ÷ AP turnover, or average AP ÷ cost of goods sold × 365. It shows how many days on average you take to pay suppliers.
- Neither higher nor lower is always better. Compare DPO with your payment terms, your industry and your cash position.
- Accurate AP numbers depend on every invoice being recorded when it's received, which is where invoice capture automation helps.
On this page
To calculate accounts payable, add up every unpaid supplier invoice at a point in time. To roll the balance forward over a period, use: ending AP = beginning AP + credit purchases − payments to suppliers. Two ratios then show how fast you pay: the AP turnover ratio (credit purchases ÷ average AP) and days payable outstanding (365 ÷ AP turnover).
Each calculation below has a worked example, then what the results mean and the mistakes that distort them.
Accounts payable balance
What you owe suppliers: the sum of open invoices. Over a period, Ending AP = Beginning AP + Credit purchases − Payments to suppliers.AP turnover ratio
How many times you pay off your payables in a period. AP turnover = Credit purchases ÷ Average accounts payable.Days payable outstanding (DPO)
The average number of days you take to pay a supplier. DPO = 365 ÷ AP turnover.
How to find the accounts payable balance#
Accounts payable is what a business owes suppliers for goods and services received on credit and not yet paid, a current liability on the balance sheet. For the basics, see what is accounts payable.
At a point in time: total accounts payable = the sum of all open (unpaid) supplier invoices, which is the total of your AP aging report.
Over a period:
Ending AP = Beginning AP + Credit purchases − Payments to suppliers
Worked example
| Item | Amount |
|---|---|
| Beginning accounts payable (Jan 1) | $60,000 |
| Credit purchases during the year | $730,000 |
| Payments to suppliers during the year | $690,000 |
| Ending accounts payable (Dec 31) | $100,000 |
$60,000 + $730,000 − $690,000 = $100,000. If your AP aging report shows a different total, something is missing: an unrecorded invoice, a payment not posted, or a credit memo not applied.
The accounts payable turnover ratio#
AP turnover = Credit purchases ÷ Average accounts payable
Average accounts payable = (Beginning AP + Ending AP) ÷ 2
Using the same numbers:
- Find average AP($60,000 + $100,000) ÷ 2 = $80,000
- Divide credit purchases by average AP$730,000 ÷ $80,000 = 9.125, or about 9.1 times a year
The business paid off its average payables balance about 9 times during the year.
Days payable outstanding (DPO)#
DPO = 365 ÷ AP turnover
or, when you only have published financial statements (an approximation, because cost of goods sold leaves out administrative purchases):
DPO = (Average AP ÷ Cost of goods sold) × 365
With the example above: 365 ÷ 9.125 = 40 days. On average, the business takes 40 days to pay a supplier.
Using cost of goods sold of $800,000 instead: ($80,000 ÷ $800,000) × 365 = 36.5 days. The two methods give different answers, so pick one and use it consistently.
What the numbers tell you#
| Result | What it may mean | What to check |
|---|---|---|
| DPO well above your payment terms | Paying late; possible cash strain; supplier friction and late fees | Approval bottlenecks, invoices stuck in inboxes, cash forecast |
| DPO close to your terms | Paying on time and using the full credit period | Nothing, if intentional |
| DPO well below your terms | Paying early and giving up cash you could hold | Whether early-payment discounts justify it |
| DPO rising over time | Stretching payments, or slower processing | Whether it's a policy choice or a process problem |
Compare with your industry and your largest suppliers' terms. A DPO of 40 days looks fine on net 45 terms and poor on net 30.
AP turnover vs AR turnover
AR turnover (credit sales ÷ average accounts receivable) and days sales outstanding measure the other side: how fast customers pay you. The gap between DSO and DPO is part of your cash conversion cycle. See accounts payable vs accounts receivable.
Common mistakes#
Check for these before you report AP turnover or DPO. Each one moves the numbers without anything changing in the business.
- Credit purchases, not total purchasesCash purchases never enter AP and inflate turnover.
- Every invoice recordedInvoices sitting in inboxes or with approvers understate AP and distort DPO. This is the most common problem, and the one automation fixes.
- One method, every periodSwitching between purchases and COGS changes DPO without anything changing in the business.
- Monthly averages for seasonal businessesYear-end-only averages hide seasonal swings in payables.
- Credit memos and accruals includedBoth change the true amount owed.
Getting accurate AP numbers#
Every calculation above depends on invoices being recorded when they arrive. Invoice capture automation reads invoices as they come in and extracts the data for posting, so the AP balance is complete at any point.
- Emailed invoices
- Supplier portals
- Scanned paper invoices
- 01Capture
- 02Extract invoice data
- 03Match and approve
- 04Post
Docsumo extracts invoice data with 99% field-level accuracy across 250+ document types, and its accounts payable automation routes invoices for approval and sends the data to your ERP through API and webhooks. It doesn't calculate the ratios: AP turnover and DPO come from your ERP or reporting tool. For more AP metrics, see accounts payable metrics and benchmarks.
- 99%field-level accuracy across 250+ document types
- 95%+of documents processed straight through, without manual review
- 99%+touchless invoices at Valtatech
The bottom line#
Accounts payable is the sum of what you owe suppliers. Divide credit purchases by average AP to get turnover, and 365 by turnover to get DPO. Read DPO against your payment terms and industry, and make sure every invoice is recorded on arrival, or the numbers won't mean much.
Book a demo with a few of your own invoices, or start a free trial.
Frequently asked questions#
How do you calculate accounts payable?
Add up all unpaid supplier invoices at a point in time. To roll it forward over a period, take beginning accounts payable, add credit purchases and subtract payments to suppliers.
What is total payable?
Total payable, or total accounts payable, is the sum of every open supplier invoice on a given date. It's the grand total of your AP aging report and the accounts payable line on the balance sheet.
What is a good accounts payable turnover ratio?
It depends on your industry and payment terms. A ratio that implies paying roughly on your agreed terms, for example about 12 times a year on net 30, is usually healthy. Much lower may mean late payments; much higher may mean paying earlier than needed.
What is the difference between AP turnover and DPO?
They measure the same thing in different units. AP turnover counts how many times payables are paid off in a period; DPO converts that into the average number of days to pay. DPO = 365 ÷ AP turnover.
Should I use purchases or cost of goods sold for DPO?
Use total supplier purchases on credit when you have them. Cost of goods sold leaves out administrative purchases, so it's only an approximation, used by analysts working from published statements that don't report purchases. Use the same method every period so trends are comparable.
Is accounts payable on the income statement?
No. Accounts payable is a current liability on the balance sheet. The related expenses appear on the income statement.