CAT / FIA FFM Syllabus A. Working Capital Management - Payable days - Notes ^{4 / 8}

Illustration:

Opening payables - $12m 

Closing payables - $22m 

Cost of sales - $336m

What is payables days?

First, lets calculate the average payables.
($12m + $22m) / 2 = $17m

Payables days = 17/336 x 365 = 19 days

It means:

The approximate amount of time that it takes for a business to make payments owed.

• It measures the average amount of time you use each dollar of your trade credit.

  This measurement gauges the relationship between your trade credit and your cash flow

• A longer average payable period allows you to maximize your trade credit.

  This means that you are delaying spending cash and taking full advantage of trade credit.