Blog · Procurement and supply chain · Procurement
How a procurement or treasury team measures actual days to pay against the terms in each supplier's contract, from the invoice and payment ledgers: the suppliers paid well before terms, the working capital that early payment ties up, the suppliers paid late who are charging for it in price, and the identity that ties the days-to-pay figure to the payables ledger.
A treasury team measures days payable outstanding as one number for the company. The payables ledger, joined to the supplier's contracted terms, shows that the number is an average of suppliers paid on day 12 against 60-day terms and suppliers paid on day 75 against 30. This guide sets out days to pay against terms per supplier, the working capital cost of paying early, and the list.
Per invoice:
Days to pay = payment date − invoice date Days against terms = days to pay − contracted days Early if days against terms < −tolerance; late if > tolerance
Per supplier, per paying entity:
Spend-weighted days against terms Early-payment value = Σ invoice value × days early, for early invoices with no discount taken Cost of early payment = early-payment value × cost of capital per day
Supplier identifiers only.
Σ payments = Σ invoices paid, per period, per entity
And every paid invoice has a payment date on or after its invoice date. A payment before the invoice date is a prepayment or a keying error, and it is listed rather than counted as very early.
Cost of capital 6 percent a year.
| Supplier | Spend | Contracted days | Actual days | Against terms | Early value, no discount | Cost | Flag |
|---|---|---|---|---|---|---|---|
| S-0217 | $8.4m | 60 | 14 | −46 | $8.4m × 46 days | $63,000/yr | |
| S-0442 | $3.1m | 45 | 43 | −2 | On terms | ||
| S-0108 | $1.9m | 30 | 11 | −19 | Discount taken: 2% | ||
| S-0330 | $0.6m | 30 | 9 | −21 | small | $2,000/yr | Prompt-payment policy |
| S-0561 | $2.2m | 30 | 71 | +41 | Late: price review likely |
Supplier S-0217 is paid a month and a half before its terms on eight million dollars of spend, for no discount, at a stated cost of sixty-three thousand dollars a year. Supplier S-0108 is paid early for a discount worth more than the cost. Supplier S-0561 is paid six weeks late, and its next price increase will include that.
| Entity | Spend | Weighted days against terms | Early cost | Late spend share |
|---|---|---|---|---|
| Entity A | $22m | −18 | $190,000 | 4% |
| Entity B | $14m | +9 | $30,000 | 31% |
Two entities, two opposite problems, one company DPO that describes neither.
Company DPO only. Early and late average to on-time.
Terms not carried. Every supplier measured against 30 days.
Discounts ignored. The best early payments are on the list.
Cost reported as loss. It is an estimate at a stated rate; say so.
Mapped once, the invoices, payments and supplier master produce days against terms, the early-payment cost and the late list per supplier and per entity every month. Covirage builds this from the exports as they are. The procurement page describes the setup, and the contract compliance guide covers the price and volume side of the same contracts.
The supplier master's payment terms field, or the contract file where terms differ by contract. Where neither is reliable, the terms printed on the supplier's invoices are the fallback, and the report shows the source per supplier.
No. An early-payment discount taken is a return on the cash. A small supplier paid promptly by policy is a decision. The list excludes invoices where a discount was taken and flags suppliers on a prompt-payment policy, so what remains is early payment nobody chose.
Days early times invoice value times the cost of capital per day, summed per supplier. The cost of capital is stated on the report. It is an estimate of what the cash would otherwise earn or save, not a cash loss, and it is labelled that way.