Days Payable Outstanding - DPO

AAA

DEFINITION of 'Days Payable Outstanding - DPO'

A company's average payable period. Days payable outstanding tells how long it takes a company to pay its invoices from trade creditors, such as suppliers. DPO is typically looked at either quarterly or yearly.

 

The formula to calculate DPO is written as: ending accounts payable / (cost of sales/number of days). These numbers are found on the balance sheet and the income statement.

 

INVESTOPEDIA EXPLAINS 'Days Payable Outstanding - DPO'

Companies must strike a delicate balance with DPO. The longer they take to pay their creditors, the more money the company has on hand, which is good for working capital and free cash flow. But if the company takes too long to pay its creditors, the creditors will be unhappy. They may refuse to extend credit in the future, or they may offer less favorable terms. Also, because some creditors give companies a discount for timely payments, the company may be paying more than it needs to for its supplies. If cash is tight, however, the cost of increasing DPO may be less than the cost of foregoing that cash earlier and having to borrow the shortfall to continue operations.

Most companies’ DPO is about 30, meaning that it takes them about a month to pay their vendors. DPO can vary by industry, and a company can compare its DPO to the industry average to see if it is paying its vendors too quickly or too slowly. If the industry standard is 45 days and the company has been paying its invoices in 15 days, it may want to stretch out its payment period to improve cash flow, as long as doing so won’t mean losing a discount, getting hit with a price increase or harming the relationship with the vendor. DPO can vary significantly from year to year, company to company and industry to industry based on how well or how poorly the company, the industry and the overall economy are performing.

VIDEO

RELATED TERMS
  1. Working Capital

    This ratio indicates whether a company has enough short term ...
  2. After-Tax Payable Period

    The average period that a company has between receiving goods ...
  3. Cash Conversion Cycle - CCC

    A metric that expresses the length of time, in days, that it ...
  4. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
  5. Creditor

    An entity (person or institution) that extends credit by giving ...
  6. Days Sales Outstanding - DSO

    A measure of the average number of days that a company takes ...
Related Articles
  1. Days Payable Outstanding is widely used by a company's management.
    Investing

    Days Payable Outstanding

    Days Payable Outstanding, or DPO, is an accounting measurement that tells the average number of days it takes a company to pay its suppliers and vendors. Days Payable Outstanding is widely used ...
  2.  Here we take a look at how you can evaluate whether the debt will affect your investment.
    Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  3. Fundamental Analysis

    Ratio Analysis Tutorial

    If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios.
  4. Insurance

    Working Capital Works

    A company's efficiency, financial strength and cash-flow health show in its management of working capital.
  5. Investing Basics

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  6. Entrepreneurship

    Identifying And Managing Business Risks

    There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
  7. Fundamental Analysis

    Measuring Company Efficiency

    Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period.
  8. Personal Finance

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  9. Investing Basics

    The Working Capital Position

    Learn how to correctly analyze a company's liquidity and beat the average investor.
  10. The cash conversion cycle (CCC) is one of several measures of management effectiveness.
    Investing Basics

    Understanding The Cash Conversion Cycle

    Find out how a simple calculation can help you uncover the most efficient companies.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center