Days payable outstanding

The average number of days a company takes to pay its suppliers.

DefinitionThe average number of days a company takes to pay its suppliers.

Days payable outstanding, or DPO, measures how long a company holds on to cash before paying its suppliers. A higher DPO keeps cash in the business longer, but stretching it past agreed terms costs early-payment discounts and supplier goodwill.

How it is computed

DPO = accounts payable / cost of goods sold for the period × days in the period. Some teams use total purchases instead of cost of goods sold; state which.

Example

Accounts payable of $410,000 at year end and annual cost of goods sold of $3,650,000 give a DPO of $410,000 / $3,650,000 × 365 = 41 days. Against 30-day terms, the company is paying about 11 days late on average.

Where it goes wrong

A year-end payment run that lowers payables on the measurement date and makes DPO look short. Mixing cost bases, such as payables that include operating expenses divided by cost of goods sold only, also inflates it. The full guide is days payable outstanding.

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