The creditor’s turnover ratio is also known as the Payables Turnover Ratio. It is useful for knowing about company payment policy. It is an activity ratio that finds out the relationship between purchases and creditor of a business.
It also useful in find out how efficiently the funds are employed by a firm and indicates the average speed with which the payments are made to the trade creditors
Formula of Creditor Turnover Ratio
Creditor Turnover Ratio = Purchase/Average Creditor
Example of how to calculate Creditor Turnover Ratio
Average Payment Days
The average payment in days shows the average number of days that a creditor remains unpaid. To calculate the average payment in days, divide 365 days by the payable turnover ratio
Formula of Average Payment Days
Average Payment Days = 365/Creditor Turnover Ratio
Example of how to calculate average payment days
