Boost Your Business Efficiency with a Strong AP Turnover Strategy

The accounts payable turnover ratio is a short-term liquidity measure which is used to quantify the rate at which a company pays off the suppliers and it also shows how many times a company pays off the accounts payable during a specific period of time. 

It is a short-term debt that a company owes to its suppliers as well as creditors and the ratio can reveal how efficient a company is at paying what it owes in the course of a year. 

If you are willing to know how it can improve your turnover Ratio of Accounts Payable, there are plenty of things that you can do such as including better payment terms with suppliers, automating invoice processing, improving your cash flow, working towards making your relationships better with the suppliers, etc. Let’s not waste time and get to know about the other details of AP and its turnover ratio! 

How can you calculate the AP turnover ratio?

Let’s get to the main question which is how to calculate the AP turnover to boost your business efficiency. There are a few different ways to calculate the turnover ratio and we are going to make you familiar with the best one. 

The first way is to simply divide the net credit purchases that are made during a period by the average payable balance during the same period of time. 

What are the ways that you can use to improve your business efficiency with a strong accounts payable turnover strategy?

Here are some of the ways that accounts payable can help you improve your business’s performance, so let’s get started learning about them.

1. Collecting accounts receivable faster

You can generate cash flow to pay bills sooner, by gathering accounts receivable faster. 

2. Payment of invoice on time 

You can pay vendor invoices by the due date and can also take advantage of early payment discounts which would be beneficial for you.

3. Renegotiating the terms of payment

If you have been making your bill payments on time, but your creditors have not yet extended generous payment terms then you have the option to revisit the terms with your supplier. 

4. Negotiating supplier terms 

You also have the chance to negotiate favourable terms with the suppliers like discounts, lower prices, extended payment terms, etc. 

5. Settings up reminders for payments 

You can set up reminders for all the upcoming payments so that you can avoid any late fees and take advantage of the discounts you can get when you make early payments. 

6. Investing in performance improvements 

There is a chance to find and invest in the systems and save expenses in staff training expenses, boosting output and cutting down on mistakes. 

7. Automated processes 

Grab the opportunity to invest in a new technology to make the procedures automatic which can eliminate the chances of human error boosting accuracy.

We hope that the details which have been offered to you in this blog about Payables turnover have been helpful and you are now aware of how the turnover ratio of the Accounts payable can help you take your business to another level.  

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