DPO: A Powerful Tool for Procurement to Drive Bottom-Line Impact

Dec 6, 2020 | Procurement tools and solutions

Stawan photo


Dec 6, 20202 min read

Days Payable Outstanding (DPO) measures how quickly a business pays its suppliers and is an important metric for procurement organizations. A high DPO maximizes cash flow by providing longer credit periods and lower pre-payments. By collaborating with well-performing suppliers, procurement organizations can impact the company's bottom-line and increase alignment with finance.

Days Payable Outstanding (DPO) is a measure of how quickly a business pays its suppliers. It is calculated by dividing the total amount of accounts payable by the total cost of goods sold (COGS) and multiplying it by the number of days in the period. The result is expressed as the number of days it takes a business to pay its suppliers. Higher DPO enables organizations to maximize their cash flow. 

What is the average Days Payable Outstanding for small businesses vs large businesses? 

On average, small businesses have a DPO of around 45-60 days, while larger businesses tend to have a DPO of 30-45 days. 

It is important to note that the DPO of a business can vary greatly depending on the industry and the size of the business. For example, businesses in the retail industry tend to have a higher DPO than businesses in the manufacturing industry. Additionally, businesses with higher sales volumes tend to have a lower DPO than businesses with lower sales volumes. Therefore, it is important to consider the specific industry and size of a business when determining its DPO. 

What's in it for procurement organizations? 

For procurement organizations, DPO is an important metric when assessing supplier performance. A high DPO indicates that the organization’s current suppliers are affording them a long credit line, enabling the organization to maximize its cash flow. This is done via better payment terms including lower pre-payments and longer credit periods. By working closely consistently with well-performing suppliers, organizations can build trust and negotiate better payment terms to maximize their DPO. This empowers procurement to impact the company’s bottom-line and therefore increase collaboration and alignment with finance organizations. 

FactWise Source-to-Pay empowers procurement organizations with a comprehensive range of analytics to enable them to negotiate better and make fact-based decisions. Our decision intelligence tools help teams maximize their cash flow via higher DPO and better payment terms, increase reliance on preferred vendors and also discover new, well-performing, vetted vendors, and leverage automation to minimize the need for tedious, manual Excel-based analysis and data management, phone calls, and emails. FactWise is committed to transforming the procurement journey for buyers and suppliers globally.

About the Author

Stawan is the founder and CEO of FactWise. Before founding FactWise, Stawan was the NA TMT-Procurement Leader at McKinsey. Passionate about procurement, Stawan has 15 years’ experience in enabling clients of all sizes to achieve business impact via procurement.


Show all

No comments to show

Suggested Articles



Privacy Policy

Terms & Conditions

©Copyright 2024. FactWise. All Rights Reserved.