Days Payable Outstanding (DPO)
Days payable outstanding are the average number of days that a company takes to pay its outstanding suppliers after a credit purchase has been recorded. It is used for the estimation of an average payment period and helps to determine the efficiency with which the company’s accounts payable are being managed.
LOW DPO – The company is taking less number of days to pay back to its suppliers.
HIGH DPO – The company is taking more number of days to pay back to its suppliers.
While preserving its working capital a company also needs to ensure that all payments to its suppliers are done within the due date. This would assure that the company’s cash is utilized optimally and their terms with creditors are maintained.
Formula and Example of Days Payable Outstanding (DPO)
DPO = (Accounts Payable/COGS)*No. of Days
Average AP for April = 25,000
Cost of Goods Sold in April = 2,50,000
No. of Days in Month = 30
DPO = (25,000/2,50,000)*30
Days Payable Outstanding = 3 Days