Days Payable Outstanding (DPO)
Average number of days taken to pay suppliers, measuring payables management
What is Days Payable Outstanding (DPO)?
Days payable outstanding is the average number of days a business takes to pay its suppliers. It shows how long the business holds on to cash before paying its bills.
A longer period improves cash but risks upsetting suppliers, so it needs balance.
How this KPI is measured
- Function
- Finance
- Sub-function
- Cash Flow Management
- Industry
- All Industries
- Type
- Lagging
- Impact
- Financial control
- Unit
- days
- Measurement frequency
- Monthly / Quarterly
- Formula
- (Accounts payable / Cost of goods sold) × Number of days in period
How to calculate it
Divide accounts payable by cost of goods sold, and multiply by the number of days in the period.
For example, if accounts payable is 1,500,000 and annual cost of goods sold is 12,000,000, DPO is (1,500,000 / 12,000,000) x 365 = about 46 days.
Compare with agreed payment terms. Paying much later than terms may harm supplier relationships and credit.
Where it is used
Managing cash
Use supplier credit wisely.
Reviewing terms
Negotiate longer terms.
Feeding the cash cycle
Use in cash conversion cycle.
How to improve it
Tips and common mistakes
- Late payment can breach the law and contracts.
- A high number is not always healthy if it comes from paying late.
- Balance cash benefits and supplier goodwill.
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