Days Payable Outstanding (DPO)
Days Payable Outstanding (DPO) is a financial metric that measures the average number of days a company takes to settle its bills with suppliers or creditors for purchases made on credit. In simpler terms, it tells you how long, on average, a company takes to pay off its outstanding accounts payable (AP).
What is Days Payable Outstanding (DPO)?
Days payable outstanding (DPO) – aka AP days – measures the average number of days a company takes to pay its suppliers. It’s calculated by dividing accounts payable by the cost of goods sold (COGS) and then multiplying by the number of days in the period.
Effectively managing DPO helps businesses optimize working capital by extending payment terms without harming supplier relationships. Companies must balance the benefits of higher DPO with the risk of damaging their reputation with suppliers or losing favorable terms. Strategic DPO management can enhance cash flow and provide financial flexibility.
