What is Days Payable Outstanding?
DPO measures how long you take to pay your bills. Unlike DSO where lower is better, higher DPO can be advantageous because it means you hold onto cash longer before paying suppliers.
Why DPO Matters for Founders
Strategic DPO management is free financing. If you collect from customers in 30 days but pay suppliers in 45 days, you have a 15-day float to use that cash for operations. This is how many large retailers fund their working capital.
For ecommerce founders, negotiating extended payment terms with suppliers while maintaining quick collection from customers can dramatically reduce working capital requirements.
The Balance
Higher DPO is not always better. Stretching payments too long damages supplier relationships and can result in losing early payment discounts or preferred customer status.
Formula
DPO = (Accounts Payable ÷ Cost of Goods Sold) × Number of Days
Or: DPO = (Average Accounts Payable ÷ COGS) × 365
Example
Your ecommerce company has:
- Average Accounts Payable: $150,000
- Annual COGS: $1,800,000
DPO = ($150,000 ÷ $1,800,000) × 365 = 30.4 days
You pay suppliers about 30 days after receiving inventory. If you can negotiate net-45 terms, you free up 15 extra days of cash float.