# How to work out days payable outstanding (DPO)

DPO is accounts payable divided by cost of goods sold, times the days in the period. It tells you how many days, on average, you take to pay suppliers. Compare it with your terms.

Free tool: [Working capital calculator](https://www.pulsify.tech/free-tools/working-capital-calculator/). Open the Cash Cycle tab of the working capital calculator. Enter payables, cost of goods sold and the period to get DPO. Add receivables, credit sales and stock to see DSO, DIO and the cash conversion cycle. Enter your average payables for a fairer figure.

## Why it matters

DPO shows how long you hold supplier cash. A DPO of 25 on 30-day terms means you pay early. A DPO of 45 means you pay late and may be hurting supplier trust.

It is one of three numbers in the cash conversion cycle, with days sales outstanding and days inventory outstanding.

## The steps

1. **Pick the period.** Use a month, quarter or year. Use the same period for both numbers.
2. **Find average accounts payable.** Add opening and closing accounts payable for the period and divide by two. Use the balance sheet or the aged payables report.
3. **Find cost of goods sold.** Use cost of goods sold for the same period from the profit and loss. If you have no stock, use total purchases from suppliers.
4. **Apply the formula.** DPO = average accounts payable / cost of goods sold x days in the period.
5. **Compare with your terms.** Line up DPO against the average terms you have agreed. A gap of more than a few days is worth a look.
6. **Track it each month.** A rising DPO may mean cash stress or late approvals. A falling DPO may mean you pay early for no reason.

## Worked example

Example Wholesale Pty Ltd reviews the quarter from 1 July to 30 September (92 days).

| Number | Amount |
| --- | --- |
| Opening accounts payable | A$180,000 |
| Closing accounts payable | A$220,000 |
| Average accounts payable | A$200,000 |
| Cost of goods sold for the quarter | A$640,000 |
| DPO | 200,000 / 640,000 x 92 = 28.75 days |

The average terms are 30 days, so Example Wholesale pays about on time. If DPO were 45, the team would look at which suppliers are paid late and why.

## Common mistakes

- Using sales instead of cost of goods sold.
- Mixing a monthly payables balance with a yearly cost figure.
- Using the closing balance only when the balance moved a lot in the period.
- Treating a high DPO as good without checking supplier relationships.

## Common questions

### What is a good DPO?

It depends on your terms. Aim to be close to the terms you agreed, not far over or under.

### Is a higher DPO better?

It keeps cash longer, but paying late can cost you supplier terms, stock priority or discounts.

### Should GST be in accounts payable?

Accounts payable on the balance sheet includes GST. Cost of goods sold does not. Many people ignore the difference for a quick measure. For a precise figure, take GST out of payables.

## Next step

Use the [Working capital calculator](https://www.pulsify.tech/free-tools/working-capital-calculator/) first. Then see [the guide to accounts payable KPIs](https://www.pulsify.tech/blog/accounts-payable-kpis-what-to-measure/).

Source: https://www.pulsify.tech/how-to/work-out-days-payable-outstanding/ (last checked 2026-10-21)