Days payable outstanding (DPO).

In plain English

Days payable outstanding divides accounts payable by cost of goods sold and multiplies by the days in the period, showing how long the company holds cash before paying vendors. Stretching payables is a form of free short-term financing, because the supplier funds the business until the payment clears. Pushed too far it damages supplier relationships, forfeits early-payment discounts, and can be an early sign of a cash squeeze. A sudden jump in DPO alongside falling cash is a pattern worth reading closely. It is the third leg of the cash conversion cycle, and unlike the other two, longer is generally better for the payer.

01Why it matters

The gap between when you pay suppliers and when customers pay you is working capital, and for a small business that gap decides whether growth funds itself or drains the account.

02The math, step by step

Say cost of goods sold is 1,825,000 dollars and accounts payable average 250,000 dollars. DPO is 50 days (250,000 divided by 1,825,000, times 365). With DIO at 61 days and DSO at 40 days, the cash conversion cycle is 51 days (61 plus 40 minus 50).

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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