Days payable outstanding (DPO)
The average number of days a business takes to pay its suppliers after receiving their invoices.
In short
- A higher DPO keeps cash in the business longer. Too high and suppliers start to push back.
- It is compared with supplier terms and with days sales outstanding.
- DPO is one of the three parts of the cash conversion cycle.
DPO = Average accounts payable ÷ Cost of goods sold × Days in period
Use 365 for a year or 90 for a quarter. Some teams use total purchases instead of cost of goods sold; either works if used consistently.
Days payable outstanding, or DPO, estimates how long, on average, a business waits before paying what it owes suppliers. It is calculated from the payables balance and the cost of goods sold or purchases for the period.
Why it matters
Every day a business delays paying a supplier, it keeps that cash. A distributor that stretches DPO from 30 to 45 days frees up two weeks of purchases in working capital. That is why DPO is a lever in managing cash and why it sits in the cash conversion cycle alongside days sales outstanding and days inventory outstanding.
The limits
Stretching payments has costs. Suppliers may charge late fees, remove early payment discounts, tighten credit or put the business lower on their priority list. Small suppliers can be harmed by long payment times, and some jurisdictions and industries have prompt payment rules, for example in construction. A DPO well above the terms suppliers offer usually signals cash trouble rather than skill.
Comparing DPO
DPO varies widely by industry and business model. The most useful comparisons are with the company's own history and with the terms it has agreed. A DPO of 42 days against net 30 terms says invoices are paid about 12 days late on average.
Worked example
A quarter's DPO
A retailer's cost of goods sold for the quarter is $2.7 million, and its average payables were $1.26 million. DPO is $1.26M ÷ $2.7M × 90 = 42 days. Most of its suppliers are on net 30. It is paying roughly 12 days late on average.