The average period that a company has between receiving goods and paying its suppliers for the goods, utilizing after-tax accounts payable and cost of sales values. The value is generally determined either quarterly or yearly, thereby substituting for N either 90 (for quarterly values) or 365 (for yearly values).
The payable period, or days payable, calculation is:
(average after-tax accounts payable / after tax cost of sales) * N number of days
The greater the number of days the company has to pay its suppliers, the more cash the company will have to direct to other working capital needs. This provides an indication of how long the company typically takes to pay its suppliers or creditors. Days payable is also used in the cash conversion cycle; the higher the days payable, the lower the cycle.