What are the days due to the outstanding?

Days payable is a ratio that determines the average time the company needs to repay its creditors. To calculate the days of payable or DPOs payable or DPO, the total amount of the company payable is divided by the cost of sale during the same set time period. The number reached after this calculation is then multiplied by the number of days in the specified period of time. In general, it is more favorable to the company to have a high DPO if it is eventually able to repay its accounts due.

It is quite obvious that the company must be able to make its payments to those who provide it with services, but repayment of these accounts is actually counterproductive. The longer the company does business to make these payments, the longer the money that is eventually used to make payments can accumulate interest. As is the case, the days of day payable become an important metric to determine the financial power of the year.

Calculation of days payable is a two -stage process. After paying accounts due to sale costs, this number is multiplied by the specified number of days in the measured period of time. Most businesses determine the DPO in terms of annual measurement, so this last number is usually 365. Any number of days can be used if the cost of sale and accounts due is taken from the same number of days.

For example, imagine that a company that has $ 1,000 payable accounts (USD) on accounts and $ 4,000 in the cost of sale over the year. In order to determine the DPO company for a given year, $ 1,000 is distributed by $ 4,000, which brings a quotient of 0.25. This number is multiplied by 365 days a year, which provides a total of 91.25. These are the days of payable companies that mean that the company takes approximately 91 days to repay the creditors who provide companies and services.

A company that can negotiate a large length of time to repay its suppliers increases its days dueoutstanding. This is important because the longer the DPO, the more funding that the company receives in the form of interest raised from the money raised in sale. Fighting companies may not have this luxury because suppliers can require payment in a much more SMBPIC way to avoid any chance of default. Companies like this have more tension in their working capital to maintain everyday maintenance of trade capital.