Days Payable

Days Payable

Dictionary Definition

This ratio measures the average length of time trade debt is outstanding.

Equation

Why it Matters to You

A company with a higher value takes longer to pay its bills, which means that it can retain available funds for a longer duration, allowing the company an opportunity to utilize those funds in a better way to maximize the benefits.  However, this can also indicate that the company is unable to pay its bills.

It is suggested that a company pays its bills on the due date to take full advantage of its freed up cash while keeping its working capital at the appropriate levels.