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DPO (Days Payable Outstanding)

DPO measures how many days, on average, pass between receiving goods and paying suppliers. A higher DPO means payment is delayed; a lower DPO means cash leaves earlier. If the supplier requires prepayment, the effective DPO becomes zero or negative.

Why It Matters

  • •Negative or zero DPO increases the amount of capital needed to finance inventory.
  • •Longer DPO reduces cash pressure and shortens the overall cash cycle.
  • •Sellers often underestimate how much their payment structure changes capital efficiency compared to changes in unit cost.
  • •DPO can vary significantly between suppliers and must always be considered together with lead time.

Connection to Capital

DPO directly determines the timing of when cash leaves the business. A negative DPO means capital is locked earlier, increasing working capital requirements; a positive DPO delays cash outflow and improves capital velocity.

Related Terms

Payment Terms Capital Lock Working Capital

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