Days Payable Outstanding (DPO)

Days payable outstanding (DPO) is a working-capital metric that shows the average number of days a company takes to pay its suppliers. It compares the amount owed to suppliers, recorded as accounts payable, with the cost of the goods and services bought over a period. Treasurers, procurement teams, analysts and suppliers' credit departments use it to see how much a company relies on trade credit as a source of funding.

DPO is the mirror image of days sales outstanding: one company's payables are another's receivables, so when a large buyer stretches its DPO, its suppliers' DSO rises. Together with days inventory outstanding, it forms the cash conversion cycle, in which DPO is the only component that is subtracted. A higher DPO keeps cash in the business for longer, but pushed too far it damages supplier relationships.

Think of a café that buys coffee beans and milk on account and settles the bill at the end of the month. In the meantime the café has already sold many of those coffees and collected the money. The supplier is, in effect, lending the café the cost of its ingredients for a few weeks at no interest.

DPO measures how long that free loan lasts on average. A café that pays after 30 days keeps its cash longer than one that pays on delivery. If it starts paying after 90 days, though, the supplier may raise prices, demand cash up front or stop delivering. So a high number is good for the café's bank balance only up to the point where suppliers start to object.

The usual calculation is:

• $\text{Accounts payable}$ is the amount owed to trade suppliers at the end of the period, or the average of opening and closing balances.
• $\text{Cost of goods sold}$ is the direct cost of the products sold in the period. Some analysts use total purchases instead, which is more precise when inventory levels change a lot.
• $\text{Number of days}$ is the length of the period, normally 365 for a year.

Take a wholesaler with trade payables of 1.5 million at year end and cost of goods sold of 10.95 million. DPO is 1.5 divided by 10.95, about 0.137, multiplied by 365, which gives 50 days. If the same company collects from customers in 60 days and holds stock for 73 days, its cash conversion cycle is about 73 plus 60 minus 50, or 83 days.

• Negotiated terms. The starting point is the supplier payment terms in contracts, such as 30, 60 or 90 days from invoice.
• Bargaining power. Large retailers and manufacturers can impose long terms on smaller suppliers; a small business buying from a dominant supplier usually cannot.
• Payment practice. Some companies pay on the due date, some pay early to capture discounts, and some pay late. Batch payment runs and approval delays also add days.
• Industry norms. Sectors with long production cycles, such as aerospace and construction, tend to show higher DPO than fast-moving retail.
• Financial stress. A sudden rise in DPO without a change in terms can mean the company is short of cash and is delaying payments.

Buyers that want a high DPO without starving their suppliers often use reverse factoring, also called supply chain finance. The buyer agrees longer terms, and a bank or supply chain finance platform offers to pay suppliers early at a discount based on the buyer's credit rating. The opposite tool is dynamic discounting, where the buyer uses its own cash to pay early in exchange for a sliding discount, which lowers DPO but earns a return.

These programmes drew scrutiny after the collapse of Greensill Capital in 2021, because some buyers' extended payables looked more like bank borrowing than ordinary trade credit. In response, the FASB added disclosure rules for supplier finance programmes (ASU 2022-04), and the IASB amended IAS 7 and IFRS 7 in 2023 to require similar disclosures, so investors can see how much of a company's DPO is supported by financing.

Many governments also limit how long large companies can take to pay. The EU Late Payment Directive (2011/7/EU) sets a 60-day ceiling for business-to-business payments unless otherwise agreed and not grossly unfair, and 30 days for public authorities in most cases. The UK requires large companies to report their payment practices publicly, and India's MSMED Act 2006 caps payment to registered micro and small enterprises at 45 days.

DPO is most useful as a trend and against peers. A steady rise backed by renegotiated terms is a deliberate treasury choice; a rise caused by missed due dates is a warning. Suppliers and trade credit insurers watch a customer's DPO for exactly that reason.

• Cost of goods sold may not match payables. Payables often include overheads and capital items that are not in cost of goods sold, which overstates DPO.
• Period-end balances can be managed. Holding back a payment run until just after the reporting date lifts the reported figure.
• Higher is not always better. Paying late can forfeit early-payment discounts that are worth more than the cost of a bank loan, and it can raise the prices suppliers charge.

For that reason, analysts read DPO together with accrued expenses, the statement of cash flows and any disclosed supplier finance balances.

• Financial Accounting Standards Board (FASB)
• IFRS Foundation