Days Payable Outstanding (DPO)
A financial ratio measuring the average number of days a company takes to pay its suppliers.
Definition
Days Payable Outstanding (DPO) is a working capital metric that indicates how long a company takes, on average, to pay its trade creditors. It's calculated as (Accounts Payable / Cost of Goods Sold) × 365. A higher DPO means the company retains cash longer.
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
Calculating DPO
AP balance of $500,000, COGS of $6,000,000. DPO = ($500,000 / $6,000,000) × 365 = 30.4 days.
Industry comparison
Retail typically has DPO of 30-45 days; manufacturing might have 45-60 days.
How Nexus AP Helps
Nexus AP provides visibility into payment timing and helps optimize DPO by ensuring invoices are processed efficiently and payment timing is strategic.
Start Free TrialFrequently Asked Questions
What is a good DPO?
It varies by industry. Generally, DPO should be optimized to match payment terms (e.g., Net 30 = ~30 days DPO) while capturing discounts when offered.
How can I improve DPO?
Process invoices faster to have more control over payment timing, negotiate better terms with suppliers, and use AP automation.
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