Days Payable Outstanding (DPO)

DPO is an estimate of the length of time the company takes to pay its vendors after receiving inventory. If the firm receives favorable terms from suppliers, it has the net effect of providing the firm with free financing. If terms are reduced and the company is forced to pay at the time of receipt of goods, it reduces financing by the trade and increases the firm's working capital requirements. It is calculated Days Payable Outstanding = 365 / Payables Turnover (Payables Turnover = Purchases / Payables).

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