What is accounts payable days?

Accounts payable days is also referred to as AP days or days payable outstanding (DPO). It is a financial ratio that shows the average number of days it takes for a business to pay its vendors over a certain amount of time. This ratio is calculated to measure the overall effectiveness of the AP process.

How do you calculate Days payable outstanding?

In simple terms, the formula for days payable outstanding is as follows: DPO value = accounts payable/ (cost of sales/number of days) In this formula, you add up all the purchases from suppliers in a specific accounting period, and then divide that by the average amount of accounts payable during that same time period.

What does a high value of accounts payable days mean?

Similarly a high value of accounts payable days appears to indicate that the company is having trouble meeting its commitments on time. It could also mean that there is working capital for a longer time, and that the company has good credit standing, which allows it to pay invoices later.

What is the difference between Days payable and days sales outstanding?

Days payable outstanding (DPO) is the average time for a company to pay its bills. By contrast, days sales outstanding (DSO) is the average length of time for sales to be paid back to the company. When a DSO is high, it indicates that the company is waiting extended periods to collect money for products that it sold on credit.