Days payable outstanding

Days payable outstanding (DPO) is an efficiency ratio that measures the average number of days a company takes to pay its suppliers.

The formula for DPO is:

$DPO = \dfrac{ending~A/P}{COGS/day}$

where ending A/P is the accounts payable balance at the end of the accounting period being considered and COGS/day is calculated by dividing the total cost of goods sold per year by 365 days.

Having fewer days of payables on the books than competitors means some are getting better credit deals than others. If a company is buying from a customer and looks at its days receivable, that company doesn't need to give them any shorter to pay them. A buyer is interested in the books of a vendor, too, for the corollary reason. Businessmen look at a range of competitors' days payable in order to establish benchmarks and maximize profits.

Having a greater days payables outstanding may indicate the Company's ability to delay payment and conserve cash. This could arise from better terms with vendors.

See also

• Working capital analysis
• Days Sales Outstanding
• Days In Inventory
• Cash Conversion Cycle

External links

• Basic Instruments of Working Capital Management