Definition
DPO estimates how many days, on average, you take to pay suppliers. Higher DPO can improve short-term cash timing, but it can also strain vendor relationships.
Formula
DPO ~ accounts payable / (COGS per day)
Example
If accounts payable is $300k and COGS is $3.6M per year ($9,863 per day), DPO is about 30 days.
How to use it
- Negotiate longer terms when appropriate, but protect reliability and trust with key vendors.
- Match payment terms to your collections cycle to reduce cash stress.
- Track DPO alongside DSO and DIO to monitor the cash conversion cycle.
- Watch for early-pay discounts that can outperform holding cash.
Common mistakes
- Pushing terms too far and creating hidden costs (supply risk, penalties, lower service levels).
- Comparing DPO across periods without adjusting for seasonality in COGS.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Days Payables Outstanding (DPO)" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Read the related guide (e.g., Cash conversion cycle: turn working capital into runway) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- APR to APY Calculator: Convert APR to APY (and APY to APR) given compounding frequency.
- Real Return (Inflation-adjusted) Calculator: Convert nominal return into real return given an inflation rate (and compare the difference).
- Deferred Revenue Rollforward Calculator: Bridge billings to recognized revenue by rolling deferred revenue forward for a period.
- Break-even Revenue Calculator: Estimate the revenue needed to break even given fixed costs and gross margin.
- NPV Calculator: Calculate net present value (NPV) from initial investment, annual cash flow, years, and discount rate.
Guides
- Cash conversion cycle: turn working capital into runway: A practical guide to the cash conversion cycle (CCC): how AR/AP timing changes cash, how to reduce days outstanding, and why runway depends on working capital.