Bramvia — Business Central Experts
DPO tells you how many days you take to pay your vendors. The formula, a worked example, what a healthy DPO looks like and how to manage it without damaging supplier relationships.
Short answer: days payable outstanding (DPO) is the average number of days you take to pay your suppliers. DPO = accounts payable ÷ cost of goods sold for the period × days in the period. With $1.0M owed to vendors and $1.8M cost of goods sold in the last quarter, DPO is 50 days. A higher DPO keeps cash in your business longer, but only up to the terms you agreed.
Next step: see vendor days next to customer and stock days, by business unit and month, in the dashboard below (Day ratios tab).
The formula
DPO = Accounts payable ÷ Cost of goods sold in the period × Days in the period
Some companies use total purchases instead of cost of goods sold; both work if you use the same one every time. Purchases is better when stock is building up or falling sharply.
Worked example
| Amount | |
|---|---|
| Payables at the end of September | $1,000,000 |
| Cost of goods sold July to September | $1,800,000 |
| Days in the period | 90 |
| DPO | 1.0 ÷ 1.8 × 90 = 50 days |
How to read it
- DPO in line with your terms: you pay on time and keep your credibility with suppliers.
- DPO well above your terms: you are financing yourself with your suppliers. It works until a key supplier puts you on hold or raises prices.
- DPO well below your terms: you pay early. Fine if you get an early-payment discount, otherwise it is cash leaving too soon.
Managing DPO well
- Pay on the due date, not before, unless there is a discount worth taking.
- Negotiate terms with your biggest suppliers rather than stretching payments.
- Schedule payment runs from due dates, so nothing is paid early or forgotten.
- Capture invoices quickly: an invoice that sits in someone's inbox gets paid late and earns no discount.
Invoice capture is covered in accounts payable automation.
DPO in Business Central
The aged accounts payable report shows what you owe by age; payment journals can suggest vendor payments by due date and take early-payment discounts automatically. The dashboard above calculates vendor days by business unit and month from the same entries.
FAQ
Is a high DPO good? Up to your agreed terms, yes. Beyond them it risks supplier relationships and, in some countries, late-payment interest.
Purchases or cost of goods sold? Either, consistently. Cost of goods sold matches the stock and cash conversion calculations.
How does DPO fit in the cash conversion cycle? It is subtracted: the longer you take to pay, the fewer days your cash is tied up. See the cash conversion cycle.
Related: days sales outstanding (DSO) and days inventory outstanding and inventory turnover.
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