The average payment period is very easily defined. These are the days it takes a company to pay its suppliers. It is a task that must be taken into account in a company, since this ratio expressed in days is very important to know and control it from the financial sector of a company. The management of the treasury is based on it and it is also important to know it when doing an analysis of the financial status of a company.
From the point of view of the exploitation cycle, the average payment period is the time that elapses between the moment a company receives the raw material, until it decides to pay the Suppliers.
In Spain, we have an average payment period of 17 days, exceeding by two days the average term in Europe, which is 15 days. Suppliers, of course, want to charge, so so that there is no delay in these deadlines, there are limits. The maximum set in the regulations on delinquency is 30 days. Therefore it is better not to delay in the term if you do not want to have problems.
On the other hand, the higher the value of the ratio, the higher the delay in payment. This ratio is studied together with the average collection period. Analyzing each of these elements, it is possible to know the financial state of a company and even its bargaining power.
Calculate average payment period
However, to know the average payment period, a simple mathematical operation must be done: it is calculated by taking an average of the average providers (providers year X + providers year X - 1) / 2. Or there is a simpler payment period formula: you have to divide the suppliers / purchases x 365 days. If you want to obtain this information more easily, you can use the average payment period calculator with which you will be able to know how many days it takes a company to pay its suppliers.
Nowadays companies look for what we call “strategic suppliers”, to have a relationship in which both win.
Types of providers