DPO measures the supplier side of the question that days sales outstanding asks about customers. In the UK it is often called creditor days, and some analysts write days payables outstanding. A higher DPO means cash stays in the business longer before it goes to suppliers, and a lower DPO means you pay sooner.
DPO formula
DPO = average accounts payable ÷ cost of goods sold × number of days in the period
Use trade payables, the amounts owed to suppliers, rather than all current liabilities. Cost of goods sold is the usual divisor because inventory and supplier invoices are both recorded at cost. Purchases match payables more closely, since payables come from what you bought in the period rather than what you sold. Purchases equal cost of goods sold plus closing inventory minus opening inventory.
| Divisor | How to get it | When it fits |
|---|---|---|
| Cost of goods sold | From the income statement | Comparing with published ratios and with DIO in the cash conversion cycle |
| Purchases | Cost of goods sold plus closing inventory minus opening inventory | Inventory changed a lot during the period |
| Credit purchases of goods and services | From the purchase ledger | Service businesses with little or no cost of goods sold |
Count 365 days for a year, or the actual days in a quarter or month, and keep one method when you compare periods.
How to calculate DPO with a worked example
Example. A building supplies wholesaler has cost of goods sold of $7,300,000 a year, or $20,000 a day. Its accounts payable were $640,000 at the start of the year and $760,000 at the end, an average of $700,000. Inventory rose from $1,150,000 to $1,250,000 over the year. All figures are illustrative.
- Cost of goods sold method. $700,000 ÷ $7,300,000 × 365 = 35 days.
- Purchases method. Purchases were $7,300,000 + $1,250,000 minus $1,150,000 = $7,400,000, so DPO is $700,000 ÷ $7,400,000 × 365 = 34.5 days.
Most of the wholesaler's suppliers give 30-day terms, so a DPO of 35 days means it pays about five days after the due date on average, or that a few suppliers give it longer terms. Each extra day of DPO keeps one day of cost of goods sold, here $20,000, in the business for longer.
In the cash conversion cycle, DPO is subtracted from days inventory outstanding plus DSO. With 60 days of inventory and a DSO of 45, the wholesaler's cycle is 60 plus 45 minus 35 = 70 days.
DPO vs DSO
| Point | Days payable outstanding | Days sales outstanding |
|---|---|---|
| What it measures | How long you take to pay suppliers | How long customers take to pay you |
| Balance used | Accounts payable | Accounts receivable |
| Divided by | Cost of goods sold or purchases | Credit sales |
| A higher figure means | Cash stays with you longer | Cash stays with customers longer |
| UK name | Creditor days | Debtor days |
Your DPO is your suppliers' DSO. The days you gain by paying late are days they lose, which is why late payment law and supplier relationships limit how far DPO can go.
What is a good DPO
A good DPO sits close to the terms your suppliers give you. Paying on the due date keeps cash in the business for the whole credit period without the cost of paying late. A DPO well below your terms means you pay early, which makes sense only when you get something for it, such as an early payment discount. On 2/10 net 30, paying on day 10 instead of day 30 earns about 37% a year, more than most businesses pay to borrow.
A DPO well above your terms usually means invoices are paid late. That improves the ratio, but suppliers notice. In the UK and the EU, a supplier paid late by another business can claim statutory interest and late payment compensation, and suppliers can shorten your terms, cut your credit limit or ask for payment in advance. Large UK companies also publish their average time to pay suppliers in payment practices reports, where customers and suppliers can compare them.
What else moves DPO
- Supplier finance. When a bank pays your suppliers early and you pay the bank later, payables stay open longer and DPO rises. Companies have to disclose these programs under US GAAP for fiscal years beginning after December 15, 2022, and under IFRS for annual periods beginning on or after January 1, 2024.
- Payment run timing. A large payment run just before the period end lowers payables, and one just after it raises them.
- Seasonal buying. Stock bought ahead of a peak raises payables before the matching cost of goods sold appears.
- Tax in the balance. Payables that include VAT or sales tax overstate DPO against cost of goods sold, which has no tax in it.
Sunbay works on the other side of the ledger, the days your customers take to pay you. It connects to your ERP or accounting system, sends reminders by email and SMS before and after the due date and reports DSO and receivables aging in its analytics view, so you can set how fast customers pay you against how fast you pay suppliers.
Frequently asked questions
How do you calculate days payable outstanding?
Divide average accounts payable by cost of goods sold for the period and multiply by the days in it. With average payables of $700,000 and cost of goods sold of $7,300,000, DPO is $700,000 ÷ $7,300,000 × 365 = 35 days.
Is a high DPO good or bad?
It is good up to the length of your supplier terms, because you keep cash longer without paying late. A DPO well above your terms usually means late payment, which can cost interest, compensation and supplier goodwill.
What is the difference between DPO and DSO?
DPO measures how long you take to pay suppliers and DSO how long customers take to pay you. For a business without inventory, DSO minus DPO is its cash conversion cycle, the number of days it funds sales from its own cash.
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