What is days payable outstanding (DPO)?
By Tim White · Glossary · Last updated
Days payable outstanding, or DPO, is the average number of days a business takes to pay its suppliers. A higher DPO means you hold cash longer, which helps working capital. Pushed too far, it means late fees, lost discounts and suppliers who stop extending terms.
How to calculate it
DPO = accounts payable ÷ cost of goods sold × days in the period. With 60,000 in payables at month end and 180,000 in cost of goods sold for a 30-day month, DPO is 60,000 ÷ 180,000 × 30, or 10 days.
Service businesses with little cost of goods sold often use total supplier purchases instead. Use the same method every month, and watch the trend more than any single figure.
Reading it
Compare DPO with your average terms. If most vendors are on net 30 and your DPO is 45, you're paying late. If it's 12, you may be paying earlier than you need to and giving up float, unless you're taking early payment discounts on purpose.
The goal is to pay when you choose to. That's hard when bills surface only after the vendor chases them.
Common questions
Is a high DPO good or bad?
Neither on its own. It's healthy if it reflects negotiated terms. It's a warning sign if it reflects late payments.
How does DPO relate to net 30?
Net 30 is what the terms allow. DPO is what actually happens. A DPO well above your average terms usually means bills are being paid late.
Sources
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