What is days payable outstanding?
The average number of days the business takes to pay its vendors. You will see it abbreviated as DPO.
Definition
Days payable outstanding is how long, on average, a vendor bill sits unpaid before cash leaves the bank. On the books, it is a timing reading of accounts payable against purchases, not a ledger account.
A print shop on vendor terms of net 30 uses it to see whether bills are actually leaving in 30 days. A higher figure means cash is staying in the bank longer; a lower figure means vendors are being paid faster.
It is an average across the open bills, not the age of any one paper order. One slow-paid mill invoice can pull the average up even when ink vendors are current.
Stay with payment days on this page. A longer average means cash is staying in the bank longer.
Where it shows up
Balance Sheet: Related to accounts payable.
P&L: Related to purchases that hit COGS or expense.
Cash flow: Related to when those bills actually leave the bank.
See also: Accounts Payable · Accounts Payable Aging · Cash Conversion Cycle
When you look at the Balance Sheet, this reading starts from the accounts payable total. You will not find a line labeled with these days.
The Income Statement is related because purchases that hit cost of goods sold or operating expenses are what the bills represent. Paying later does not create a second expense.
On the Statement of Cash Flows, a rising figure often pairs with payables providing cash. Changes in working capital will show that source even when leftover profit looks unchanged.
An aging report buckets the same bills by how late they are. This page collapses those buckets into one average so you can watch the trend.
When the figure is well above the terms vendors printed, cash is staying longer than agreed. When it is at or under those terms, the shop is paying on the schedule it signed.
How it works
Take the accounts payable balance. Divide it by average purchases per day for the same period.
Average purchases per day is credit purchases divided by the number of days in the period. A 30-day month with $15,000 of purchases is $500 a day.
The result is how many days of purchases are still unpaid. It is an average, not a promise that every bill clears on that day.
Use purchases on account, not every cash run to the paper store. Mixing cash buys into the denominator makes payment days look shorter than they are.
Stay with this one lag when you read it. Inventory days and receivable days are other legs, and they are not this page.
The figure goes up when you buy more than you pay, or when a few large mill bills slip. It goes down when the check run catches up with the open bills.
Match the period to the balance you are reading. A year of purchases against month-end payables will understate the lag.
After the month closes, recompute with the new payable total and that month's purchases. Last month's 38 days is history.
Example
Pressroom Print is on vendor terms of net 30 and has $19,000 of accounts payable. Purchases for the 30-day month were $15,000.
Average purchases per day are $15,000 divided by 30, which is $500. Divide $19,000 by $500, and days payable outstanding is 38.
Those 38 days are 8 days past the terms on the bills. The shop is holding cash an extra 8 days, on average, past the date vendors expected.
If the same month's payables had been $15,000, the figure would have been 30 days. Payments would have matched the printed terms.
A $6,000 paper mill bill that sits 50 days will pull the average up even if smaller ink invoices clear in 28. The aging report is where you see that one bill; this page is the blended lag.
If next month's purchases stay $15,000 and payables fall to $15,000, the figure drops to 30 days. Cash left faster, and the Income Statement does not have to change for that to happen.
Common mix-ups
Days payable outstanding is not the payable balance. The balance is a dollar total; this page is how many days that total represents.
Days payable outstanding is not the terms printed on the vendor bill. Net 30 is the agreement; 38 days is how long cash actually took to leave.
Days payable outstanding is not the cash conversion cycle. The cycle nets inventory, receivable, and payable days; this page stays on payment days only.
Related terms
- Accounts Payable: Amounts the business owes vendors for goods or services already received.
- Accounts Payable Aging: A report bucketing unpaid vendor bills by how long they have been outstanding.
- Cash Conversion Cycle: The number of days between paying for inputs and collecting from customers.
- Accounts Payable Turnover: How many times payables are paid off and rebuilt in a period.
- Payment Terms: The agreed deadline and conditions for paying an invoice.
- Check Run: The scheduled batch in which approved vendor bills are paid.
- Vendor Bill: The invoice a supplier sends that becomes a payable.
- Early Payment Discount: A price reduction offered for paying an invoice ahead of the due date.