What Is Accounts Payable Days?

Sid Ghosh

Reviewed by

Sid Ghosh WSO Editorial Board

Expertise: Investment Banking | Private Equity

Accounts Payable Days is an accounting concept related to Accounts Payable. It is the length of time it takes to clear all outstanding Accounts Payable. This concept is useful for determining how efficient the company is at clearing whatever short-term account obligations it may have.

Accounts Payable days Formula

The formula for calculating Accounts Payable Days is:

  • (Accounts Payable / Cost of Goods Sold) x Number of Days In Year

For the purpose of this calculation, it is usually assumed that there are 360 days in the year (4 quarters of 90 days). Accounts Payable Days is often found on a financial statement projection model.

Accounts Payable Days in Finance

This metric can be used to assess the cash flow of the business in comparison to other businesses within the industry. The following example illustrates how accounts payable days can impact cashflows.

Accounts Payable Days Example

For this example Companies A and B are both in the same industry. Company A has $3,500 in accounts payable and has sold $42,000 worth of goods. Company B has 3,000 in accounts payable and has also sold $40,000 worth of goods.

Company A

  • (3,500/42,000) x 365 = 30.4 or 30 days

Company B

  • (3,000/40,000) x 365 = 27.3 or 27 days

Company A has the a higher number of days payable outstanding. They pay accounts approximately 30 days after billing and Company B pays about 27 days after billing. Company A is able to hold onto its cash longer. This cash can be used for short term investments or to increase working capital. Next, let's say that Company A is the industry standard. Consequently, Company B might consider extending their payment periods to increase cash-flow ceteris paribus.

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Sid Ghosh

Sid Ghosh is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. Sid began his career as an investment banking analyst at Rothschild and Co., where he did mergers & acquisitions and helped build the firm's North American Equity Advisory practice. Following the completion of his IB program, he became an associate at Pantheon. Sid then worked as a senior associate at Dunbar Capital, a privately-held alternative investment firm before joining 747 Capital as an associate. Sid graduated from NYU Stern and is completing his MBA at Columbia.. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.