Most people are going to opt for the latter, and that’s exactly what measuring AP days does for your organization. Or, you could run a calculation that gives you a single number you can use as a ‘grade’ or benchmark. One way to satisfy your curiosity might be to spot check every vendor payment and the entire paper trail of POs, invoices, and receipts to see how things are going. Let’s say you’re curious about how well your AP department is functioning, overall vendor satisfaction, and your cash flow. So what’s the point of going through this exercise? Why Should You Calculate Accounts Payable Days? If you include the cash payments, the AP days will be too low. *Note: You should modify this calculation to exclude cash payments to vendors and only include purchases on credit. To turn this into AP days, we divide 8 turns into 365 days: This means Stampli’s accounts payable turned over 8 times over the last year. With this data, our controller calculates the accounts payable turnover as: Over the last 12 months, purchases were $5,000,000.
At the beginning of this time period, our beginning accounts payable balance was $500,000 and the ending balance was $750,000. The controller at Stampli wants to calculate our AP days for the last year. Here’s a quick example to show you how this might look in a real-life scenario: It’s not complicated from a mathematics perspective, but important nonetheless. The formula for AP days is super simple: Tally all purchases from vendors during the measurement period and divide by the average amount of accounts payable during that same period. The point is that in baseball or in accounts payable, there are dozens of metrics you can track, but if you’re able to get it down to a single number it provides a powerful insight you can actually use. *For baseball nerds-WAR measures how much better (or worse) a player is against a typical average player. Think of it like an advanced metric in baseball like wins over replacement (WAR)-it uses a formula to give you a single number that you can use to analyze the effectiveness of a larger system. It’s calculated to measure the effectiveness of the overall AP process. Put another way, it’s the amount of days that an organization uses to pay its vendors. The term “accounts payable days,” also known as AP days and days payable outstanding (DPO), is a financial ratio that displays the average number of days of credit that an organization has to pay its invoices to vendors and suppliers for a period of time.
In this post we’re going to explain what the AP days calculation is, show how the formula works, and explore ways to reduce the number if yours is too high. If your organization is showing a trend of increasing AP days over time, that is a clear indicator that something is amiss in your AP workflows and needs to be addressed. Lastly, the amount of time it takes you to pay an invoice-an AP day-can be a direct indication of the overall health and efficacy of your AP department. For obvious reasons.Īnother reason is that you’ll start racking up late payment penalties if you make it a habit. The first is your company’s reputation-you don’t want to get a bad name in your industry or be known as the company who doesn’t pay on time. There are a few things at stake when it comes to your organization’s ability to process invoices in a timely manner.
The AP days calculation is the measurement tool for this. And not just vendors, either-internal stakeholders at your own organization care very much how long it takes to process an invoice. Super-lame AP humor aside, do people really care exactly how fast an invoice gets paid? If an invoice is processed in a forest and there’s nobody around, does anybody hear about the payment?
0 kommentar(er)
