Finance
DSO and DPO (Days Sales / Payables Outstanding)
DSO minus DPO is the gap you're financing with your own cash. DSO is the average days customers take to pay you; DPO is the average days you take to pay vendors. Bring DSO down or DPO up and you free operating cash without borrowing. The formulas, healthy ranges, and how to shift each lever.
DSO = (A/R ÷ Revenue) × days. A DSO of 45 means your average customer pays 45 days after invoice. Net-30 contracts with a 45-day DSO mean collection is slipping.
DPO = (A/P ÷ COGS) × days. A DPO of 30 means you pay vendors 30 days after their invoice. Stretching DPO beyond vendor terms erodes relationships.
Together with Days Inventory, they form the Cash Conversion Cycle, the master working-capital metric.
Common pitfalls
- Calculating DSO on revenue from a single month, which is misleading if collections lag or surge
- Treating disputed invoices as 'overdue' instead of carving them out distorts the DSO trend
- Stretching DPO past supplier terms to manage cash, then losing volume discounts and goodwill
Related service
See fractional CFO servicesRelated terms
Have a DSO and DPO (Days Sales / Payables Outstanding) situation in your business?
One team covering bookkeeping through fractional CFO, so the figure you just read about comes out of a ledger you can stand behind.