DPO (Days payable outstanding)
#30GUIDING QUESTION
How many days do you take to pay your suppliers?
DPO (Days Payable Outstanding): measures the management of trade credit received.
01.What it is
DPO shows the average number of days a company takes to pay its suppliers. A high value can improve liquidity, but an excessive one can damage business relationships or lead to surcharges.
02.Component masses
- Average trade payables
- Credit purchases
03.Formula
MAIN FORMULA
DPO (payment days): (Average trade payables ÷ Credit purchases) × 365(days)
04.Interpretation
- ↑ DPO → longer payment terms, temporary cash improvement.
- ↓ DPO → fast payments, less debt pressure but less liquidity.
05.Related to
- Cash conversion cycle
- Liquidity
- DSO
- DIO