Understanding Accounts Payable Turnover: A Quick Guide for UK Businesses

When it comes to managing a company’s money, few things matter as much as keeping track of what you owe your vendors.

With that in mind, we’ve put this guide together to break down the Accounts Payable Turnover ratio in detail.

We’ll walk you through ways to calculate it, what it means when the ratio is high or low, and why each scenario can impact your business in different ways.

And if you’re looking to streamline your working capital and handle international vendor payments with ease, we’ll explain why opening a Wise Business account could be the smart move.

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Key Takeaways

Topic	Notes
📊 Definition & Purpose	A vital liquidity metric showing how efficiently a business pays short-term supplier debts, typically over a year.
💰 Financial Health Insight	Provides immediate clarity on short-term liquidity (ability to pay bills) and cash-flow efficiency (use of supplier credit terms.
🔄 Calculation	Calculated as Net Credit Purchases divided by Average Accounts Payable; the result shows how many times payables are cleared in the period.
📈 High Ratio Implication	Indicates the company is paying suppliers quickly, which suggests strong liquidity, but may mean not fully capitalising on credit terms.
📉 Low Ratio Implication	Indicates the company is taking longer to pay, which can signal strategic cash preservation or potential cash-flow issues.
🤝 Supplier Relationships	A healthy, consistent ratio builds trust, leading to better terms and preventing supply chain disruptions from late payments.
🗓️ Days Payable Outstanding (DPO)	An intuitive conversion where $DPO = 365 / AP \ Turnover \ Ratio$, showing the average number of days it takes to pay suppliers.
🎯 "Good" Ratio Context	There is no single ideal ratio; it must be assessed against industry benchmarks, specific supplier terms, and the company’s internal cash flow strategy.
💡 Optimisation Tool	Services like Wise Business can help streamline international payments to maintain a consistent ratio and optimise DPO strategically.

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Key Fact ⚠️: If the client is a small business in the private sector, then it is the responsibility of the contractor’s company to determine IR35 status.

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What is Accounts Payable Turnover, and why does it matter?

The Accounts Payable (AP) Turnover ratio is a vital liquidity ratio in the accounts payable process. It measures how quickly a company pays its short-term debts to suppliers or creditors who have extended trade credit.

To put it simply, it tells you how often a company clears its outstanding vendor bills over a given time, usually a year.

Around 90% of UK companies faced delayed payments in the past year. 44% believe that delays are now more frequent than ever ¹.

Stats like this underscore the importance of companies keeping tabs on vendors’ payment schedules. If not well cared for, this could have serious repercussions for the company’s finances!

This leads us to conclude that accounts payable turnover is a helpful metric you’ll find on a company’s balance sheet. It gives you a quick look at two things:

• Short-term liquidity: How easily the company can pay its immediate bills.
• Cash-flow efficiency: How well it’s using the payment terms offered by its suppliers.

A thorough analysis of this ratio provides several key benefits for management, investors, and creditors. Now, let’s see what this number can help you understand:

Your Company’s Financial Health

• Cash flow clarity: A high ratio means you’re paying bills quickly. This is great for liquidity, but you might miss out on using vendor credit to your advantage. On the other hand, a low ratio shows you’re holding onto cash longer. This is also smart, but it hints at cash-flow trouble if payments are delayed too long.
• Risk signals: Investors, lenders, and suppliers look closely at this metric. If your ratio stays too low for too long, it can raise red flags about financial stability. Eventually, it gets harder to secure credit or good financing terms - and no one wants that.

How to Manage Working Capital Management

• Smarter payment timing: Understanding your turnover ratio helps you decide when to pay vendors. You can choose to take full advantage of credit terms or pay early to strengthen cash flow.
• Boosting profitability: Paying early can bring many supplier discounts. This, in turn, lowers your cost of goods sold and improves your margins. This ratio also helps you choose which vendors to prioritise for early payments.

Secrets Behind Good Supplier Relationships

• Building trust: A healthy, consistent ratio shows vendors you’re reliable. That trust can lead to better pricing, higher credit limits, or more flexible terms.
• Preventing disruptions: If your ratio is too low and payments are often late, suppliers may tighten their terms. Some may even pause deliveries, putting your supply chain at risk.

Reliable Benchmarking and Growth Planning

• Industry comparison: Tracking your ratio against competitors provides a clear view of where you stand and whether your payment practices align with industry norms.
• Supporting strategic decisions: A strong AP Turnover ratio indicates stable cash flow and good credit history. These are the key factors when evaluating whether your business is ready to grow or take on new opportunities.

Accounts Payable Turnover isn't just a formality for your finance team. It’s an in-depth check of how healthy your business really is.

It reflects how much leverage you have with suppliers, how much you spend on inventory, and how comfortably you can handle short-term bills. Overlooking it can put your profits and supply chain at risk.

For further clarification, consider the example of retail giant Tesco. Their purchasing cycles are massive ².

Each day, they work with thousands of suppliers, restock daily, and manage the constant movement of goods.

Accurate AP Turnover can help them plan stock levels more accurately. If their ratio suddenly changes, it could signal shifts in buying patterns, seasonal demand, or changes in supplier terms.

This helps Tesco spot when they need to tweak their buying strategy, renegotiate terms, or get ready for cash-flow changes.

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How to calculate Accounts Payable Turnover

Calculating your Accounts Payable (AP) Turnover ratio is easier than it sounds. Once you know the two numbers you need, you can quickly figure out how fast your business pays its suppliers.

The most accurate way to calculate AP Turnover is by using Net Credit Purchases:

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AP Turnover Ratio = Total Net Credit Purchases​ / Average Accounts Payable

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Some companies use Cost of Goods Sold (COGS) instead. However, Net Credit Purchases provide a clearer picture of your cash flow efficiency across all suppliers, not just those tied to inventory.

So basically, you’ll need two things: Net Credit Purchases and Average Accounts Payable for your chosen period (monthly, quarterly, or yearly).

How to Find Total Net Credit Purchases (Numerator)

This is the total value of goods and services you bought on credit, minus any returns or adjustments.

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Net Credit Purchases = Total Credit Purchases – Credit Purchase Returns

Pro tip: Only include purchases made on credit. Cash purchases don’t count. Most accounting or AP software can pull this number for you.

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How to Find Average Accounts Payable (Denominator)

This is the average amount you owed suppliers during the period.

Look for the Accounts Payable figure under current liabilities on your balance sheet, then use:

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Average AP = (Beginning AP Balance + Ending AP Balance) / 2

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Your final AP Turnover number shows how many times you paid off your complete payables balance during the period. For example, an AP Turnover of 6 means you paid your suppliers roughly six times in a year. That works out to a payment cycle of about 60 days (365 ÷ 6).

High vs. low Accounts Payable Turnover ratios

A company's Accounts Payable (AP) Turnover ratio can reveal a lot about how it manages cash flow and supplier payments. But like most financial metrics, context matters.

A "high" or "low" ratio doesn't automatically mean something good or bad. You need to look at why the number is where it is.

The table below summarises the differences between high and low turnover ratios as well as what to expect.

Ratio type	What it suggests	Possible positive reasons	Possible concerns
High AP Turnover	The company pays suppliers quickly	Strong cash position, efficient AP processes, strong vendor trust	Not using credit terms entirely, reduced cash flexibility
Low AP Turnover	The company takes longer to pay suppliers	Strategic cash preservation, favourable credit terms, and seasonal cash cycles	Potential cash-flow issues, inefficient payment systems, and supplier concerns

What a High AP Turnover ratio indicates

A high AP Turnover ratio usually indicates that the company pays its suppliers promptly. This can point to:

• Strong liquidity
• Efficient cash flow management
• Healthy relationships with vendors

Note that an extremely high ratio isn’t always a win. It may mean the company is paying too early and not fully taking advantage of available credit terms. They may be missing out on an easy way to conserve cash.

What a Low AP Turnover ratio indicates

A low ratio typically suggests slower payments, which can raise questions about:

• Possible cash-flow challenges
• Trouble meeting short-term obligations
• Inefficient internal processes

At this point, it’s essential to note that a very low AP Turnover Ratio could potentially raise concerns for investors and lenders. They may sense financial instability or inefficient cash management around the corner.

But again, context matters. A low ratio isn’t always negative. It may simply mean the company is:

• Using full credit terms wisely to preserve cash
• Benefiting from extended vendor terms
• Paying slowly due to seasonal cycles (e.g., higher spending peaks or cash inflows at certain times)

At the end of the day, the business should be transparent about its current AP status. This provides clarity for investors and increases their confidence in the company.

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👀 Find out more by reading our guide to accounts payable automation.

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Converting Accounts Payable Turnover into days payable outstanding

Days Payable Outstanding (DPO) tells you the average number of days a company takes to pay its suppliers. We can also call it the “calendar version” of the Accounts Payable Turnover ratio. Here’s what each represents:

• AP Turnover Ratio = How many times you pay suppliers in a period?
• DPO = How many days do you take to pay them?

The formula for converting Accounts Payable (AP) Turnover Ratio into Days Payment Outstanding (DPO) is as follows:

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DPO = 365 / AP Turnover Ratio

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A higher DPO indicates that a company is taking longer to pay suppliers. And a lower DPO means suppliers are paid sooner. Check out this example that might help you understand it better:

If a company’s AP Turnover ratio is 6.0, then:

DPO = 365 / 6 ≈ 60.8 days

That means the business pays suppliers roughly every 60 days.

Importance of Converting AP Turnover into DPO

The conversion of the AP Turnover ratio into DPO is a metric that helps make critical business decisions. A few reasons why it matters so much are:

• Easier to understand: Converts ratios into a simple timeline (days). This makes cash-flow planning more intuitive.
• Benchmarking: Quickly compare payment speed against industry norms (30/45/60/90-day cycles).
• Improves cash-flow decisions: Helps you stretch payments. You can decide on early-payment discounts and optimise working capital.
• Early warning indicator: Sudden changes in DPO can signal cash shortages, missed credit opportunities, or shifts in supplier terms.
• Useful for investors/lenders: Shows whether a company is delaying payments (potential distress) or paying too fast (inefficient cash use).

Example

The table below looks into the Days Payable of Tesco (TSCDY) and what it indicates³:

Metric/Indicator	Recent Value (approx.)	What It Suggests/Context
Days Payable Outstanding (DPO)	~ 58 days (as of mid-2025)	On average, Tesco takes about 58 days to pay suppliers. This is a moderate-to-typical timeframe in retail.
Historical DPO range (past 10 years)	Min ≈ 47.8 days, Median ≈ 57.9 days, Max ≈ 61 days	Shows relative stability: Tesco hasn’t swung between extremely short or extremely long payment cycles. It indicates consistent payment discipline.
Industry comparison (Retail-Defensive sector)	Tesco’s DPO (≈ 60.3 days) ranks better (longer) than around 73% of 306 companies in the Retail - Defensive industry.	Implies Tesco is likely to use its supplier credit terms more fully than many peers. They can conserve cash rather than rushing to pay.

Tesco’s stable ~58-day DPO shows that a somewhat lower turnover (i.e., slower payables) can be a controlled, strategic decision. It is not necessarily a red flag.

That said, because of reporting limitations, you have to be careful not to treat DPO as an exact substitute for AP Turnover Ratio. The numbers tell a story. But only after you interpret them in context.

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What is considered a good Accounts Payable Ratio?

As a rough benchmark, an Accounts Payable Turnover ratio of around 12 suggests payments are made in about 30 days.

But this can vary widely across sectors, so there really isn’t a single definition of a "good" AP Turnover Ratio.

Every business operates under different supplier terms, cash positions, and industry norms, so context is key.

For example, companies with generous credit terms may naturally show a lower ratio because they take longer to pay. In comparison, cash-rich businesses might pay vendors quickly and end up with a higher ratio.

Industry standards and company size also influence what’s considered healthy. At its core, the ratio must align with your strategy and trends over time.

Tracking it consistently helps you spot shifts in payment behaviour and cash flow pressures. Your finance team can spot opportunities to make payables much easier and efficient.

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👀 Find out more by reading our guide to 5 Ways UK Businesses Can Transform Accounts Payable Processes.

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Wise Business directly supports the AP management process

Still think accounts payable means spending days shuffling invoices and losing money on hidden exchange rate fees for international vendor transactions? Wise Business is here to help you do better.

With a Wise Business advanced plan*, you can send money internationally with Wise to 140+ countries and access account details in 8+ currencies.

For seamless, reliable international transfers, you can pay suppliers, team members, and invoices with batch payments in multiple currencies, which helps to maintain a consistent AP Turnover ratio and optimise Days Payable Outstanding (DPO).

What’s more, Wise Business integrates with accounting software like Xero and Quickbooks, giving you the option to automate routine tasks and save valuable hours on manual processing of expenses and payments reconciliation.

You can even manage your team's access and set limits as your business grows.

Be Smart, Get Wise.

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*Disclaimer: The UK Wise Business pricing structure is changing with effect from 26/11/2025 date. Receiving money, direct debits and getting paid features are not available with the Essential Plan which you can open for free. Pay a one-time set up fee of £50 to unlock Advanced features including account details to receive payments in 22+ currencies or 8+ currencies for non-swift payments. You’ll also get access to our invoice generating tool, payment links, QuickPay QR codes and the ability to set up direct debits all within one account. Please check our website for the latest pricing information.

FAQs

1. What is the difference between Accounts Payable and Accounts Receivable Ratios?

Accounts Payable (AP) ratios show how efficiently a company pays its suppliers, while Accounts Receivable (AR) ratios measure how quickly a company collects payments from customers.

So basically, AP focuses on money going out, and AR focuses on money coming in. Both are integral for managing cash flow effectively.

1. What are the limitations of the Accounts Payable Turnover Ratio?

While the AP Turnover ratio is a valuable indicator of payment efficiency, it doesn’t tell the whole story. It can be affected by seasonal spending, industry norms, or one-off large payments.

A very high or low ratio doesn’t always mean good or bad performance. Context, supplier terms, and cash flow strategy should all be considered.

1. How can I optimise my Accounts Payable Turnover Ratio?

You can improve your AP Turnover by paying suppliers on time while taking full advantage of credit terms.

Tools like Wise Business can streamline payments, particularly if you deal with international vendors. With an Advanced plan, you can use features like batch payments or automated scheduling to save time and keep your cash flow predictable.

*Disclaimer: The UK Wise Business pricing structure is changing with effect from 26/11/2025 date. Receiving money, direct debits and getting paid features are not available with the Essential Plan which you can open for free. Pay a one-time set up fee of £50 to unlock Advanced features including account details to receive payments in 22+ currencies or 8+ currencies for non-swift payments. You’ll also get access to our invoice generating tool, payment links, QuickPay QR codes and the ability to set up direct debits all within one account. Please check our website for the latest pricing information.

Sources:

1. 2025 UK Payment Survey: companies face rising payment delays amid buyer cash flow concerns
2. Strategic Analysis of Tesco's International Purchasing and Supply Chain Management: Challenges, Opportunities, and Future Directions
3. Tesco (TSCDY) Days Payable: 58.04 (As of Aug. 2025)

Sources last checked on 12th December 2025