Best Practices for Days Payable Outstanding

A higher DPO is usually a good thing. By waiting longer to pay its suppliers, a company can put the cash to alternative uses and require less capital to finance inventory.
But sometimes a lower DPO is better. By paying suppliers early, a company can get discounts and avoid late fees. The company will also maintain good relationships with suppliers and not be subject to credit restrictions and harsh payment terms.
Thus, a company’s goal should be to optimize DPO as a high (or low) DPO isn’t always better.
A company can optimize its DPO with:
• Better A/P processes
• Better recordkeeping
• Better payment terms
• Better payment timing
This video discusses these 4 ways to optimize DPO in more detail.
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