What do you mean by trade payable days, Strategic Management

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Q. What do you mean by Trade payable days?

Trade payable days (turnover)

  {Yearend trade payables / Credit purchases (or cost of sales)} x   365 days

This is the length of time taken to pay the suppliers.  The ratio can also be calculated using cost of sales, as credit purchases are not usually stated in the financial statements. High trade payable day's is good as credit from suppliers represents free credit. If it's too high then there is a risk of the suppliers not extending credit in the future and may lose goodwill.  High trade payable days can also indicate that business has no cash to pay which indicates insolvency problems.


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