Definition
Payable Days (DPO)
Payable days, or days payable outstanding, measure the average number of days a company takes to pay its suppliers after a purchase.
Calculated as average trade payables divided by cost of goods sold, times 365, payable days show how long a company holds on to cash owed to suppliers. Stretching payables is a cheap source of financing, effectively an interest-free loan from suppliers.
However, excessive payable days can strain supplier relationships or signal cash-flow trouble. In the cash conversion cycle, longer payable days shorten the cycle, freeing up working capital, which is why companies balance supplier goodwill against the cash benefit of delaying payment.
Related terms
- Cash Conversion CycleThe cash conversion cycle measures how many days it takes a company to turn investments in inventory and receivables back into cash.
- Inventory Turnover RatioThe inventory turnover ratio measures how many times a company sells and replaces its inventory over a period, indicating how efficiently stock is managed.
- Receivable Days (DSO)Receivable days, or days sales outstanding, measure the average number of days a company takes to collect payment from its customers after a sale.
- Working Capital CycleThe working capital cycle is the time it takes a company to convert its investment in inventory and receivables back into cash, net of payables.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.