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The Hidden Metric That Can Make or Break Your Business

The Hidden Metric That Can Make or Break Your Business

Master Your AP Turnover: Optimize Cash Flow & Financial Strategy

Aleksandar Stojanovic
March 10, 2025 • Read Time: 6 minutes

WELCOME TO ISSUE NO #045

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📆 Today’s Rundown

Hey 👋, hope you had a great week! In the last issue, we discussed why tracking AP Aging matters, and now we are moving with the next topic from Cash Flow & Expenses content.

Most startups track revenue, burn rate, and cash runway like their life depends on it.

But there’s one hidden metric that many ignore—and it could mean the difference between financial stability and a cash flow crisis.

AP Turnover Ratio

Your AP Turnover Ratio shows how often your business pays its creditors in a given period. In short, it’s a liquidity signal—it reveals how well you're managing your cash flow and financial obligations.

If your ratio is too low, it could mean:
❌ Cash flow problems
❌ Late payments damaging vendor relationships
❌ Difficulty securing credit in the future

If your ratio is too high, it might indicate:
⚠️ You’re paying bills too quickly, missing out on using credit strategically
⚠️ You could reinvest that cash into growth instead of just settling accounts

So how do you find the right balance?

That’s exactly what we’re covering today.

By the end of this breakdown, you’ll know:
✅ What your ratio says about your business health
✅ How to optimize it for better cash flow management
✅ How to calculate your AP Turnover Ratio (and why it matters)

Newsletter highlights

Calculate Your AP Turnover Ratio 📊
What’s a "Good" AP Turnover Ratio? ✅
How to Improve Your AP Turnover Ratio 💹
Why This Matters for SaaS & Tech Companies? ⚠️
Exclusive Content Drop 🆓

Calculate Your AP Turnover Ratio

The formula is simple:

📊 AP Turnover Ratio = Total Net Credit Purchases / Average Accounts Payable

Example: If a SaaS company has $400K in net credit purchases and an average AP balance of $175K, its AP Turnover Ratio is 2.29—meaning it pays off its accounts 2.29 times during the period.

But what does that actually mean?

Confused Rooster Teeth GIF by Achievement Hunter

What’s a "Good" AP Turnover Ratio?

There’s no universal perfect number. It depends on:
✔️ Your industry benchmarks
✔️ How well your AP turnover aligns with your net burn and cash flow
✔️ Whether you have favorable payment terms with suppliers

Rule of thumb:
✅ Higher AP Turnover → You’re paying off debts quickly (good for supplier relationships)
✅ Lower AP Turnover → You’re holding onto cash longer (potentially good for strategic reinvestment)

The real challenge? Striking the right balance.

Want a Smarter Way to Track AP Turnover?

At Fiscallion, we make it easy.

We integrate with your ERP, pulling real-time financial metrics—including AP aging reports, burn rates, and cash flow trends—so you can make data-driven decisions in seconds.

No more guesswork. Just real insights that help your business grow.

Want to see how it works? Book a call today 👈

PS. Hit reply and let me know—what’s your biggest challenge with managing cash flow? I read every response.

How to Improve Your AP Turnover Ratio?

➡ If your ratio is too low (taking too long to pay):
🔹 Improve cash flow forecasting to avoid delays
🔹 Negotiate better payment terms with suppliers
🔹 Automate bill payments to ensure on-time payments

➡ If your ratio is too high (paying too fast):
🔸 Take full advantage of payment terms (don’t pay early unless there’s a discount)
🔸 Extend supplier payment terms where possible
🔸 Reinvest cash in growth opportunities before paying off accounts

Why This Matters for SaaS & Tech Companies?

In the SaaS world, capital efficiency is king. Investors want to see:
📉 A controlled burn rate
💰 Smart use of credit (not just fast bill payments)
📊 A financial strategy that maximizes cash flow without sacrificing growth

Tracking your AP turnover in real time can help you:
✅ Maintain strong vendor relationships
✅ Keep a healthy cash runway
✅ Avoid financial blind spots before they become problems