Days Payable Outstanding (DPO)

What is Days Payable Outstanding (DPO)?

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Days Payable Outstanding (DPO) is a measure of how long, on average, a business takes to pay its suppliers after receiving goods or services. It is calculated as the average number of days between receiving a supplier invoice and making payment against it.

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DPO is the AP counterpart to DSO. Where DSO measures how quickly a business collects from customers, DPO measures how long it takes to pay suppliers.

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The DPO formula

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DPO = (Accounts Payable / Cost of Goods Sold) × Number of Days

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For example: if a business has $8 million in outstanding payables and its cost of goods sold over the past 90 days was $60 million, DPO = (8,000,000 / 60,000,000) × 90 = 12 days.

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What DPO tells you

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A higher DPO means the business is holding onto cash longer before paying suppliers — which is good for working capital. A lower DPO means the business pays quickly — which may sacrifice working capital but can qualify for early payment discounts.

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The optimal DPO is one that maximises cash retention without breaching payment terms or damaging key supplier relationships.

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DPO in the context of working capital

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DPO is one of the three components of the Cash Conversion Cycle (CCC). A longer DPO improves the CCC by extending the time before cash leaves the business. Optimising DPO alongside DSO and inventory days is a core working capital management objective.

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Related: Accounts payable (AP) · Procure-to-Pay (P2P) · Days Sales Outstanding (DSO) · AP automation