Like all software automation systems, automated AP generates vast amounts of data that can be reported and analyzed. In the realm of AP, the Accounts Payable Turnover Ratio (APTR) is an important financial metric that can be easily obtained through an automated Accounts Payable system. APTR assesses how effectively a company manages its accounts payable process by measuring the frequency with which it pays off its suppliers. This ratio is significant for a number of reasons.
The Accounts Payable Turnover Ratio is not unlike Accounts Payable Days, also known as AP Days or Days Payable Outstanding (DPO). However, APTR offers a wider range of insights into a company’s working capital management, supplier relationships, cash flow efficiency, and overall financial health. Monitoring this ratio allows stakeholders to gauge operational efficiency, identify potential risks or inefficiencies, and make informed decisions to drive business success.
The APTR may be calculated by generating the necessary reports from the AP automation system. For a manual calculation, it’s a matter of dividing the total purchases made on credit by the average accounts payable during a specific period.
APTR formula
Accounts Payable Turnover Ratio = Total Credit Purchases / Average Accounts Payable
Definitions
Reading the APTR
The Accounts Payable Turnover Ratio indicates how many times a company pays off its accounts payable balance within a specific period, typically a year. A higher APTR indicates that the company pays off its suppliers more frequently. In contrast, lower APTR suggests that payments are being made less often, potentially indicating inefficiencies in accounts payable management or extended payment terms negotiated with suppliers.
APTR calculation example
For the accounting period April 1 2024 through March 31 2025
Total credit purchases April 1 2024 through March 31 2025 = $6.75m
Accounts payable balance April 1, 2024 = $1.2m
Accounts payable balance March 31, 2025 = $1.3m
Average accounts payable = ($1.2m + $1.3m) / 2 = $1.25m
APTR = $6.75m / $1.25m = 5.4 times per year
An enterprise with automated accounts payable (AP) processing can optimize its Accounts Payable Turnover Ratio (APTR) in several ways:
Using APTR to analyze its historical performance and compare it with industry benchmarks, an enterprise is equipped to spot trends, identify efficiency improvements, and make data-driven decisions. Automated AP processing allows the optimization of payments and adjustment of the APTR. Ultimately this allows an enterprise to exert better strategic control over its financial performance.
Book a live demo to see the end-to-end processes on live customers systems and learn how easy it is to try this for free on a Proof of Concept.
Book a Live Demo to see the end-to-end processes on live customers systems and learn how easy it is to try this for free on a Proof of Concept.