Average Payments Period Concept
Average Payments Period is an activity indicator that seeks to measure the efficiency level with which the company is managing its suppliers payments. The bigger the average payments term, bigger its payment terms negotiation capacity but can also mean difficulties in the fulfillment of the agreed terms.
Average payments period is calculated by the division of the debts to suppliers average amount by the purchases of material and merchandise or services (added the taxes owed to suppliers) at a certain period of time. The indicator can then be converted in days, weeks or months, being enough for that to multiply the result obtained by 365, 52 or 12, accordingly (considering naturally that the considered period was one year).
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