![]() ![]() The longer a payment is delayed, the longer the company holds onto that cash, which tends to benefit the company’s profit margins, as well as increase free cash flows (FCFs). The good or service has been delivered to the company as part of the transaction agreement – with receipt of the invoice – but the company has not yet paid the supplier or vendor.ĭuring that stretch of time, when the supplier awaits the payment, the cash remains in the hands of the buyer, with no restrictions on how it can be spent. On the balance sheet, the accounts payable ( AP) line item represents the accumulated balance of unmet payments for past purchases made by the company. The days payable outstanding (DPO) is a working capital metric that counts the number of days a company takes before fulfilling its outstanding invoices owed to suppliers or vendors for purchases made using credit, rather than cash. How to Calculate Days Payable Outstanding (DPO)? DPO provides insights into the operating efficiency of a company’s accounts payable management, which ties into working capital management and cash flow optimization.A higher DPO value indicates greater negotiating power with suppliers, which improves the company’s cash flow and near-term liquidity. ![]() DPO is calculated by dividing the average accounts payable balance by the cost of goods sold (COGS), and then multiplying by the number of days in the period (usually 365 days).Days payable outstanding (DPO) measures the average number of days it takes for a company to pay its outstanding supplier invoices for credit purchases.
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