Close to the payment terms offered. DSO well above terms means collections are slipping.

Is a high DPO always good?

Not if it means paying late. Stretching suppliers past terms damages credit and supply.

DSO vs DPO

DSO measures how many days of sales are still uncollected; DPO measures how many days of purchases are still unpaid — together with inventory days they make the cash conversion cycle.

Each, defined

DSO

DSO is a liquidity and working-capital metric, calculated as (Ending AR ÷ Credit sales for the period) × Days in the period. Two formulas exist — see order to cash.

Formula: (Ending AR ÷ Credit sales for the period) × Days in the period

DSO in the glossary

DPO

DPO is a liquidity and working-capital metric, calculated as (Ending AP ÷ COGS for the period) × Days in the period. Some use purchases rather than COGS, which suits a business whose AP is mostly opex. Render with on-time payment rate adjacent — see procure to pay.

Formula: (Ending AP ÷ COGS for the period) × Days in the period

DPO in the glossary

Side by side

DSO and DPO compared
	DSO	DPO
Balance	Receivables	Payables
Flow	Credit sales	Cost of revenue or purchases
Better for cash	Lower	Higher (within terms)

Northwind's collection and payment days

Over Northwind's 30-day September 2026, $8,000 of receivables against $22,000 of credit sales is 10.9 days of sales outstanding; $6,000 of payables against $17,000 of cost of revenue is 10.6 days payable. (Northwind Traders, Inc., September 2026, accrual basis, USD.)

Northwind's collection and payment days
	DSO	DPO
Ending balance	8,000.00	6,000.00
Flow for the period	22,000.00	17,000.00
Days in the period	30	30
Days outstanding	10.9 days	10.6 days

How they relate

Lower DSO means customers pay faster. Higher DPO means the company holds its cash longer before paying suppliers. Both improve cash flow, within the limits of the terms each side agreed.

Both are sensitive to the period chosen and to whether ending or average balances are used, so compare like with like.

Questions

What is a good DSO?: Close to the payment terms offered. DSO well above terms means collections are slipping.
Is a high DPO always good?: Not if it means paying late. Stretching suppliers past terms damages credit and supply.

See it computed

Worked through: the calculators, the journal entries and the tools that use these terms.

Definitions are the glossary’s, generated from the same documents. Figures in the examples are computed by tested functions, not typed. General information for US companies under US GAAP, not accounting or tax advice.