In one sentenceThe average number of days the business takes to pay its suppliers, calculated by dividing payables by cost of sales and multiplying by 365.
Simply put
The longer this period, within what you agreed with suppliers, the longer the cash stays with you, so it is free financing for your business.
But stretching it by paying later than the agreed dates harms your relationship with suppliers, and may cost you early-payment discounts or make them raise their prices.
Worked example
A distribution business has an annual cost of sales of 1,460,000 SAR, and its payables balance to suppliers is 200,000 SAR.
Daily cost of sales = 1,460,000 ÷ 3654,000 SAR
Payables200,000 SAR
Payment period = 200,000 ÷ 4,00050 days
Formula: Payables ÷ cost of sales × 365
Don't confuse it with
Days sales outstandingCollection from customers is divided by sales, and payment to suppliers is divided by cost of sales.
in FullScreen ERP
Supplier accounts include account statements and supplier payables aging. Purchasing and suppliers