Days Payable Outstanding (DPO)
Average number of days the firm takes to pay suppliers. Computed as average accounts payable divided by daily COGS.
When to use: Use to measure how aggressively the firm finances itself with supplier credit. Higher DPO = longer payment terms = more working-capital efficiency. Watch for trend changes — sudden DPO compression often precedes liquidity stress.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| DPO | Days Payable Outstanding | Average days to pay suppliers | integer |
| Payables | Accounts Payable | Average accounts payable balance | $ |
| COGS | Cost of Goods Sold | Annual cost of goods sold | $ |
Real-Life Examples
Example 1: Mid-Cap Manufacturer
Average payables $100M, COGS $1,200M.
Given
Step-by-Step
~30 days to pay suppliers — typical of net-30 terms. Negotiating longer payment terms (DPO 60+) is one of the levers for shrinking the cash conversion cycle.
Frequently Asked Questions
Almost always — supplier credit is interest-free working-capital financing. The ceiling is set by supplier relationships and contract terms; abusive DPO inflation can damage relationships and lead to less favorable pricing.
Suppliers may be tightening terms because of credit concerns, or the firm may be losing pricing leverage. Either way, sudden DPO compression is a red flag worth investigating.