How days payable outstanding works
DPO is calculated by dividing accounts payable by cost of goods sold for a period, then multiplying by the number of days in that period. It shows how long, on average, a business uses supplier credit before settling its bills, which is a useful measure of how it manages short-term cash. Some businesses calculate DPO using total purchases instead of cost of goods sold, depending on which figure better represents their spending.
A business wants a DPO that is long enough to preserve cash without damaging vendor relationships or missing early payment discounts. Paying too slowly can hurt supplier trust, while paying too fast can leave less cash on hand than necessary. DPO is often compared against DSO to understand overall cash timing. A DPO that is much shorter than vendor terms may mean a business is paying earlier than it needs to and giving up available cash.
Example
A company has $60,000 in accounts payable and $600,000 in cost of goods sold over a 90 day quarter. DPO equals $60,000 divided by $600,000, times 90 days, which equals 9 days. If its vendors offer 30 day terms, a DPO of 9 days suggests the company could hold cash longer without upsetting suppliers.
Days payable outstanding in QuickBooks Online vs Xero
Not software-specific: neither QuickBooks Online nor Xero calculates DPO directly, but both provide the accounts payable balance and cost figures needed to work it out. Businesses typically calculate DPO in a spreadsheet or a connected financial reporting tool alongside other cash flow metrics. Because DPO depends on both payables and cost figures, keeping vendor bills coded correctly is essential for an accurate number.
Related terms
How LedgerBPO handles days payable outstanding
We track your days payable outstanding alongside your other cash flow metrics, so you can see whether you are paying vendors too fast or risking late payment. A dedicated accountant helps balance vendor terms against your available cash. You get a clearer picture of how payables affect your overall cash position. We calculate DPO alongside DSO each month so you can see the full cash timing picture together.