Definition
The average number of days a company takes to pay its suppliers.
Why it matters
Higher DPO preserves cash but can strain supplier relationships.
Where it shows up in a deal
DPO is calculated during diligence from your payables balance and cost of goods sold, and revisited whenever supplier terms change or a funder is working out why cash is tight despite healthy margins. It is the payables half of the cash conversion cycle.
What it affects
- Each additional day of DPO releases roughly one day of COGS in cash, but only once.
- A DPO well above your suppliers' stated terms usually means late payment rather than negotiated terms.
- Rising DPO alongside falling margins is read as distress, not as treasury skill.
- Extending payables forfeits early-payment discounts that can cost more than financing would.
A worked example
Payables of $420,000 against $4,200,000 of annual COGS gives DPO = ($420,000 / $4,200,000) x 365 = 36.5 days. Stretching to 45 days releases 8.5 x ($4,200,000 / 365) = 8.5 x $11,507, or about $97,800 of cash - once, not every month.
The common mistake
Related terms
- Accounts PayableMoney a business owes its suppliers and vendors.
- Cash Conversion CycleThe number of days between paying for inventory and collecting cash from customers.
- Early Payment DiscountA discount offered to customers who pay before the due date, such as 2/10 net 30.
- Working CapitalCurrent assets minus current liabilities — the cash available to run daily operations.
Questions about how days payable outstanding affects your facility?
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