What is Days Payable Outstanding (DPO)?
Days Payable Outstanding (DPO) is an ecommerce KPI and metric that measures the average number of days it takes for a business to pay its suppliers after receiving an invoice. A higher DPO means the business is taking longer to pay its suppliers, which can help preserve cash flow in the short term. However, excessively high DPO could strain relationships with suppliers.
How to Calculate DPO?
It is calculated by dividing accounts payable by the cost of goods sold (COGS) and multiplying by the number of days in the period.
Why is DPO an Important KPI in Ecommece?
For ecommerce businesses, managing DPO effectively is a balancing act. On one hand, paying suppliers too quickly may reduce cash flow, while paying too slowly could hurt relationships or lead to unfavorable payment terms. By optimizing DPO, ecommerce businesses can preserve cash flow while maintaining good supplier relationships. A well-managed DPO helps ensure that a business has the funds to pay its bills, cover operating expenses, and invest in growth.
Where Can I Find More Information About Ecommerce DPO?
Read our in-depth article on Days Payable Outstanding.
Ecommerce DPO Formula
DPO = (Accounts Payable / COGS) × 365
Days Payable Outstanding is calculated by dividing your accounts payable by the Cost of Goods Sold (COGS) multiplied by 365.