Average time to payment of suppliers, expressed in days, according to the following formula:
(44 / (600/8 + 61 + 9145)) x 365
This is calculated by dividing the total amount of trade payables by the cost of purchasing products, services and goods. Here too VAT must be taken into account.
It is not possible to calculate the average term of payment for concise balance sheets because of the way these are made up. A dash is then shown instead of the ratio.
The credit given by suppliers or time to payment to suppliers is the other side of the coin. As for the previous ratio, this figure can be compared with the average for the industry.
Trade practice may very well vary widely from industry to industry. This ratio is often used by suppliers to assess the payment practice of potential customers.
For this reason care must be taken into interpreting the figures. A long time payment may indicate, for example, that the supplier wishes to demonstrate his confidence in a major customer. However, it may also mean that the company is in trouble and unable to make rapid payments because it does simply not have the cash.
The term of payment for suppliers is only calculated in complete balance sheets.