Days payable outstanding (DPO) is the average number of days a company takes to pay its suppliers after they invoice it. The formula is ending accounts payable divided by cost of goods sold or purchases on credit, times the days in the period. A higher DPO keeps cash in the business longer, up to the point where it strains suppliers.
DPO is the payables side of working capital and one of the three parts of the cash conversion cycle. Its mirror on the receivables side is days sales outstanding. This entry covers the formula and a calculator, the choice of denominator that most guides skip (and that matters most for software companies), DPO next to DSO, early-payment discounts and what a sensible DPO looks like.
DPO calculator
Enter one period. The calculator is prefilled with the illustrative example below: a B2B SaaS company whose suppliers bill it $7,300,000 a year.
You take 20.0 days on average to pay suppliers, who bill you $20,000 a day. That is 10.0 days inside net 30 terms. Paying on the due date instead would hold about $200,000 more cash, unless early payment earns a discount worth more. Each extra day of DPO keeps about $20,000 in the bank, once.
Days payable outstanding formula
DPO = Accounts payable / Cost of goods sold (or purchases on credit) x Days in the period. Use 365 for a year, about 90 for a quarter and about 30 for a month, and take the balance and the flow from the same period.| Measure | Formula | Excel or Sheets | Example (illustrative) |
|---|---|---|---|
| DPO (standard) | Ending AP / purchases x days | =B2/B4B5 | $400,000 / $7,300,000 x 365 = 20.0 days |
| DPO on average AP | (Beginning AP + ending AP) / 2 / purchases x days | =AVERAGE(B2,B3)/B4B5 | $380,000 / $7,300,000 x 365 = 19.0 days |
| DPO on COGS | Ending AP / COGS x days | =B2/B6*B5 | $400,000 / $3,650,000 x 365 = 40.0 days |
| AP turnover | Purchases / average AP | =B4/AVERAGE(B2,B3) | $7,300,000 / $380,000 = 19.2 times |
| DPO from AP turnover | Days / AP turnover | =B5/(B4/AVERAGE(B2,B3)) | 365 / 19.2 = 19.0 days |
COGS or purchases: the choice that matters for SaaS
Use the denominator that matches what sits in accounts payable. Most guides divide by cost of goods sold, which works for a manufacturer or retailer, because most supplier bills are for goods it sells.A SaaS company is different. Its cost of revenue is mostly hosting, support staff and payment fees, and staff are paid through payroll, not payables. Its accounts payable also holds software subscriptions, contractors, agencies, events and office costs that sit in operating expenses. Divide all of those payables by COGS alone and DPO looks far longer than it is. In the example, the same $400,000 of payables is 40.0 days of COGS and 20.0 days of supplier bills. The second number is how long the company actually takes to pay.
| Business model | Most of AP is | DPO denominator |
|---|---|---|
| Manufacturer or distributor | Inventory and materials | COGS or purchases |
| Retailer | Merchandise | COGS or purchases |
| SaaS company | Hosting, software, contractors, marketing vendors | Total purchases on credit (COGS plus non-payroll operating costs) |
| Services firm | Subcontractors and travel | Purchases on credit |
Worked example (illustrative)
A B2B SaaS company reports for a full year.
- Cost of revenue is $3,650,000. Suppliers bill it $7,300,000 in the year across hosting, software, contractors and events, or $20,000 a day. - It owed suppliers $360,000 at the start of the year and owes $400,000 at the end. - DPO is $400,000 / $7,300,000 x 365 = 20.0 days. On average payables of $380,000 it is 19.0 days. - On COGS, DPO would read 40.0 days, twice the real figure. - Most suppliers are on net 30, so the company pays about 10 days early. Paying on the due date would hold about $200,000 more cash (10 days x $20,000), once. - With DSO of 50.0 days and no inventory, its cash conversion cycle is 50.0 - 20.0 = 30.0 days.
Is a high DPO good or bad?
A high DPO is good while it stays within supplier terms, and a warning sign beyond them. Inside terms, every extra day keeps one day of supplier bills in the bank. Past terms, the company is borrowing from suppliers without asking.- Within terms: paying on the due date instead of early is free cash, unless the supplier offers a discount for paying early. - Past terms: late fees, lost discounts, credit holds and lower priority with suppliers. Small suppliers feel it in their own cash flow. - Rising DPO with falling cash: the pattern to watch. It can mean the company is stretching payables because it has to.
For scale, The Hackett Group's 2025 Working Capital Survey of the top 1,000 US public nonfinancial companies found DPO rebounded to 59 days, a 3% improvement, which drove most of the year's 4% gain in the cash conversion cycle. Those are large companies with buying power, many of them holding inventory, so treat 59 days as context rather than a target for a software company.
DPO vs DSO
| DSO | DPO | |
|---|---|---|
| Measures | How long customers take to pay you | How long you take to pay suppliers |
| Formula | Accounts receivable / credit sales x days | Accounts payable / purchases or COGS x days |
| SaaS denominator | Billings, not recognized revenue | Supplier purchases, not COGS alone |
| You want it | Lower, close to your terms | Close to suppliers' terms, not past them |
| Calculator | DSO calculator | This page |
Early-payment discounts: when paying sooner wins
Take an early-payment discount when its annualized value beats your cost of cash. Terms of 2/10 net 30 offer 2% off for paying by day 10 instead of day 30. Skipping the discount means paying 2% of the invoice to keep the other 98% for 20 more days.Annualized cost of skipping = discount / (100% - discount) x 365 / (full-payment days - discount days)
For 2/10 net 30 that is (2 / 98) x (365 / 20) = 37.2% a year, before compounding. For 1/10 net 30 it is (1 / 99) x (365 / 20) = 18.4%. Both are above what most companies pay to borrow, which is why paying early can be the better use of cash even though it lowers DPO.
How SaaS finance teams manage DPO
- Pay on the due date, not on receipt. Schedule payment runs against due dates. - Agree terms when you sign. Annual software contracts, hosting commitments and agency retainers are negotiated once; payment terms belong in that negotiation. - Pay small suppliers on time. A contractor waiting 60 days for $8,000 is a relationship problem that DPO does not show. - Plan payments with collections. Annual billing brings cash in at quarter end; the 13-week cash flow template lines up weekly receipts and payments.
Pete Furseth on cash timing
Pete Furseth, ORM's COO, sees the same calendar across ORM's customers: the fourth quarter is typically the largest, and within a quarter the third month is always the largest. Customer cash arrives in waves after quarter end, while most supplier bills, payroll and commissions do not wait for it. A DPO measured at quarter end can look different from one measured mid-quarter for that reason alone, so compare each quarter with the same quarter last year.
This entry explains a metric for planning and analysis. It is not accounting, tax or legal advice.
Sources
- The Hackett Group, 2025 Working Capital Survey press release, August 18, 2025: DPO 59 days, up 3%; cash conversion cycle 37 days, 4% better; top 1,000 US public nonfinancial companies.
- Early-payment discount cost: arithmetic shown on this page.
- ORM, observations across its B2B SaaS customers (Pete Furseth): quarterly and monthly seasonality.
Frequently Asked Questions
How do you calculate days payable outstanding?
Divide accounts payable at the end of the period by cost of goods sold or by purchases on credit for the same period, then multiply by the days in the period. A company that owes suppliers $400,000 at year end and receives $7,300,000 of supplier bills in the year has a DPO of 400,000 / 7,300,000 x 365 = 20.0 days. Use average payables for a steadier figure.
Is a high days payable outstanding good?
Up to a point. A higher DPO means the company keeps cash longer before paying suppliers, which shortens the cash conversion cycle. Above your suppliers' terms it means paying late, which can cost late fees, lost early-payment discounts and supplier goodwill. A DPO that rises while cash falls can be a sign the company is stretching suppliers because it has to, not because it chose to.
What is the difference between DSO and DPO?
DSO, days sales outstanding, measures how long customers take to pay you. DPO measures how long you take to pay suppliers. DSO is receivables over credit sales, and DPO is payables over cost of goods sold or purchases, each times the days in the period. For a company with no inventory, DSO minus DPO is the cash conversion cycle: the days its own cash is tied up.
Should DPO use cost of goods sold or purchases?
Use the cost that matches what sits in accounts payable. In a manufacturer, most supplier bills are in cost of goods sold, so COGS works. In a SaaS company, payables also hold software, contractors, agencies and events that sit in operating expenses, while COGS is mostly hosting and support. Dividing all those payables by COGS alone overstates DPO, so use total supplier purchases on credit.
What does 2/10 net 30 mean, and should you take the discount?
2/10 net 30 means the buyer can take 2% off by paying within 10 days, or pay the full amount by day 30. Skipping the discount means paying 2% to keep the cash 20 more days. That works out to about (2 / 98) x (365 / 20) = 37.2% a year, before compounding, which is more than most companies pay to borrow. Take it if you have the cash.
How do you calculate payable days for a month or a quarter?
Use the payables balance at the end of the month or quarter and the purchases or cost of goods sold for the same period, and multiply by the days in that period: about 30 for a month and 90 for a quarter. Do not mix a quarter-end balance with annual purchases and 90 days, because that cuts DPO to about a quarter of its real value.
Put these metrics to work
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