Days Payable Outstanding (DPO)
Days payable outstanding (DPO) is the average number of days a company takes to pay its suppliers, calculated as average accounts payable divided by cost of goods sold, multiplied by the number of days in the period.
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Formula
DPO = (Average accounts payable ÷ Cost of goods sold) × Number of days in the period
Example: Opening AP is $380,000 and closing AP is $420,000, so average AP is $400,000. Annual cost of goods sold is $4,800,000. DPO = ($400,000 ÷ $4,800,000) × 365 = 30.4 days.
DPO equals average accounts payable divided by cost of goods sold, multiplied by the days in the period. A company with $400,000 of average payables and $4.8 million of annual cost of goods sold has a DPO of about 30 days, so it pays suppliers in roughly a month on average.
Definition
DPO measures how long cash stays in the business before it goes to suppliers. A higher DPO means the company holds cash longer; a lower DPO means it pays faster. It is one part of the cash conversion cycle, alongside days sales outstanding and days inventory outstanding. Comparing DPO with the payment terms you have agreed shows whether you pay early, on time or late.
Why It Matters
DPO is a key working capital metric. Too low means you're paying too fast; too high can strain vendor relationships. Optimizing DPO balances cash flow with vendor satisfaction.
Examples
Quarterly DPO
Average AP for the quarter is $150,000 and cost of goods sold for the quarter is $900,000. DPO = ($150,000 ÷ $900,000) × 90 = 15 days.
Comparing DPO with terms
A company on mostly Net 45 terms has a DPO of 32 days. It pays suppliers about two weeks early on average, which is cash it could keep longer without breaching terms.
How Aequo AP Helps
Aequo AP records each invoice's dates and terms and shows what is waiting for approval, so the team can pay on the agreed due date rather than early or late. The DPO optimization calculator models the cash effect of paying to terms.
Start Free TrialFrequently Asked Questions
How do you calculate days payable outstanding?
Divide average accounts payable for the period by cost of goods sold for the same period, then multiply by the number of days in the period (365 for a year, 90 for a quarter).
What is a good DPO?
There is no single good number. It depends on your industry and the terms you have agreed. A useful check is to compare DPO with your average payment terms: well below them means you are paying early, and well above them means you are paying late.
Is a higher DPO better?
A higher DPO keeps cash in the business longer, but only up to your agreed terms. Stretching past terms leads to late fees, lost discounts and strained supplier relationships.
Can you use purchases instead of cost of goods sold?
Yes. Some companies divide by total credit purchases instead, especially service businesses with little cost of goods sold. Use the same method every period so the trend is comparable.
What is the difference between DPO and DSO?
DPO measures how long you take to pay suppliers. DSO (days sales outstanding) measures how long customers take to pay you. Together with inventory days they make up the cash conversion cycle.
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