Accounting glossary
DPO
Days payable outstanding
Days payable outstanding (DPO) is the average number of days your business takes to pay its vendors. It is trade payables divided by purchases (or cost of goods sold), multiplied by the days in the period, and shows how much of your working capital vendors finance.
Why it matters to your business
Your vendors’ credit is often the cheapest finance your business has. DPO tells you how much of it you are using, and whether you are paying in line with the terms you agreed. Read with DSO, it shows whether you pay vendors before or after your customers pay you.
How it works
DPO = trade payables ÷ purchases for the period × number of days in the period.
Suppose your payables on 31-03-2026 are ₹9,00,000 and your purchases for the year were ₹72,00,000.
DPO = ₹9,00,000 ÷ ₹72,00,000 × 365 = about 46 days.
Now combine it with your other working capital days. If stock stays with you for 60 days and customers take 40 days to pay (DSO), your cash conversion cycle is 60 + 40 − 46 = 54 days. Each day you shave off stock or DSO frees cash; paying vendors on the due date rather than early keeps DPO at its natural level.
Common mistakes
- Stretching vendors instead of fixing collections. Paying late to cover slow customers damages supply and credit terms. Work on DSO first.
- Forgetting the 180-day GST rule. Bills unpaid 180 days after their date require input tax credit to be reversed until you pay.
- Mixing figures with and without GST. Payables include GST, while purchases in the P&L do not. Compare like with like and read the trend.
- Paying early by habit. Paying a 45-day bill on day 5 gives away 40 days of free credit unless the vendor offers a cash discount worth taking. A 2% discount for paying 30 days early is worth far more than a month’s interest on the same amount, so compare before you decide.
Questions about DPO
Is a high DPO good or bad?
Up to your agreed credit period, a higher DPO means vendors are funding more of your stock, which helps cash. Beyond it, you are paying late, which can cost input tax credit, interest to MSME vendors and your standing with suppliers.
What is the cash conversion cycle?
It is the number of days between paying for stock and collecting from customers, worked out as days of stock plus DSO minus DPO. The shorter it is, the less working capital your business needs.
Is DPO the same as creditor days?
Yes. Indian accountants usually call it creditor days or the creditors payment period.
Does DPO apply to MSME vendors differently?
Yes, in practice. Registered micro and small enterprises must be paid within the agreed period, which cannot exceed 45 days (15 days if nothing was agreed), so stretching their bills to raise DPO is not an option.
Updated .