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.