Days Payable Outstanding (DPO)
Definition
The average number of days you take to pay your suppliers. A higher DPO means you hold onto cash longer.
Want a deeper explanation?
Formula
DPO = (Average Accounts Payable ÷ COGS) × 365DPO is one of the three levers in the cash conversion cycle. Negotiating 60-day terms instead of paying deposits upfront can free up more cash than a bank loan.
It has to be balanced against supplier relationships and early-pay discounts. Watch for: a DPO that keeps stretching because you cannot pay, not because you negotiated, which suppliers notice quickly.
Example
$100,000 average AP and $1,200,000 annual COGS gives a DPO of about 30 days.