Days payable outstanding

How long the business takes to pay its own suppliers - payables divided by cost of goods sold, times 365.

Example

Northgate's 600,000 over 2,520,000 times 365 is 86.9 days, against 83.4 days a year earlier.

Important

Longer payment terms look like free funding and are, right up until a supplier shortens them. That withdrawal typically arrives at the moment the business can least absorb it.

Related terms

• Accounts payable — Money the business owes suppliers for goods or services it has received and not yet paid for. Also called trade creditors.
• Cash conversion cycle — The number of days between money leaving the business to buy or make something and money arriving from the customer who bought it. Days of receivables plus days of inventory minus days of payables.
• Working capital — The money tied up in ordinary trading. The operating version - receivables plus inventory minus payables - excludes cash and borrowings, and is the one that behaves like a use of money.

Lessons that explain it

• Working capital: the cash growth eats — Between selling something and being paid for it, a business funds the gap out of its own pocket. Working capital is the size of that gap, and it is why growing companies run out of money. (11 min)

All 578 terms in the Investing glossary