Days Payable Outstanding
Days Payable Outstanding

See Also:
Accounts Payable
Accounts Payable Turnover
Days Sales Outstanding (DSO)
Days Inventory Outstanding (DIO)
How to Create Dynamic Cash Flow Projections

Days Payable Outstanding Definition

Days payable outstanding (DPO), defined also as days purchase outstanding, indicates how many days on average a company pay off its accounts payables during an accounting period. A useful tool to measure and manage DPO is a Flash Report.

Days Payable Outstanding Meaning

Days payable outstanding means the activity ratio that measures how well a business is managing its accounts payable. The lower the ratio, the quicker the business pays its liabilities. It also shows the average payment terms granted to a company by its suppliers. The higher the ratio, the better credit terms a company gets from its suppliers. From a company’s prospective, an increase in DPO is an improvement and a decrease is deterioration.

Days Payable Outstanding Formula

The days payable outstanding formula is listed in two forms below:
DPO = (average accounts payable / cost of goods sold) * 365 days
Or
DPO = average accounts payable / (cost of sales / 365 days)
[box](NOTE: Want the 25 Ways To Improve Cash Flow? It gives you tips that you can take to manage and improve your company’s cash flow in 24 hours!. Get it here!)[/box]

Days Payable Outstanding Calculation

Days payable outstanding calculations can occur in the following method:
For example, a business has $ 2,500 in accounts payable, $ 12,500 in cost of goods sold.
Days payable outstanding = (2,500 / 12,500) * 365 = 73 days

Days Payable Outstanding Example

Leslie has a business which provides raw materials, from her distributors, to product manufacturers. Her business, reliant on relationships with customers, offers trade credit on the materials she sells.
Leslie wants to make sure her business is being paid on time with her competitors. This gives her the expectable cash cycles required to maintain a competitive edge. Simply, Leslie wants to know her days payable outstanding. She first asks the question “what is days payable outstanding?”
Leslie contacts her CFO and requests the answer to her question. Recently, she has become aware of the importance of financial ratios in commerce. Though Leslie is not an accountant she wants to make sure that she is in control of the success of her business, and sees an understanding of her financials as one of the many aspects to this.
Leslie’s CFO performs this days payable outstanding analysis:
$2,500 in accounts payable and $12,500 in cost of goods sold.
DPO = (2,500 / 12,500) * 365 = 73 days
Now it is time for Leslie, as the CEO of her company, to step into action. She finds an expert in the industry and discovers that 37 days is a good days payable outstanding benchmark. She is pleased with these results.
Leslie can now move on to other tasks in her company. She is confident that with her analytical mind and the help of her qualified CFO growth can occur. For more ways to improve your cash flow, download the free 25 Ways to Improve Cash Flow whitepaper.
days payable outstanding
[box]Strategic CFO Lab Member Extra
Access your Cash Flow Tuneup Execution Plan in SCFO Lab. This tool enables you to quantify the cash unlocked in your company.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
days payable outstanding

Resources

For statistics information about industry financial ratios, please go to the following websites: www.bizstats.com and www.valueline.com.

ARTICLES YOU MIGHT LIKE

The Struggles of Private Company Accounting

Hiring the right accountant  When I meet a business owner operating at a successful $10 million in revenue, they often mention, “My CPA”… I immediately know that CEO/Entrepreneur is referring to their Tax CPA.  That is because one thing that all Entrepreneurs have in common is that they must file a tax return.  So, from

Read More »

Financial Ratios

See also:Quick Ratio AnalysisPrice to Book Value AnalysisPrice Earnings Growth Ratio AnalysisTime Interest Earned Ratio Analysis Use of Financial Ratios Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The most useful comparison when

Read More »

CPA’s are Specialized

The Difference in CPAs Looking back at my career I don’t know how many times I have introduced myself to someone and they ask, “Are you a CPA?” and I say yes. Then they tell me “you must be very busy with tax season” and I look at them with a bit of awe and

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

September 12-15th 2022

Days
Hours
Min
SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ WORKSHOP SERIES

Strategic CFO™ Financial Leadership Workshop
The Art Of The CFO®

Days
Hours
Min

February 27 - March 2, 2023

Skip to content