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Days Payable Outstanding (DPO) measures the average number of days a business takes to pay its suppliers and vendors for raw materials or services purchased on credit.
Days Payable Outstanding (DPO) is a crucial operational cash management metric. A higher DPO means the company retains cash longer before paying vendors, increasing available short-term liquidity. However, excessively high DPO can strain supplier relationships and trigger penal interest under MSME protection laws.
Managing DPO allows businesses to maximize short-term working capital without taking on external interest-bearing bank debt.
Accounts Payable represents total unpaid vendor bills, and Cost of Goods Sold (COGS) measures total direct material and manufacturing costs over the period.
A trading business has ₹20,00,000 in accounts payable and ₹1,20,00,000 in COGS over a 365-day fiscal year.
✓ The business takes approximately 61 days to settle vendor invoices.
45 to 60 days. Must align with supplier credit terms to preserve supply chain trust.
Under Indian Tax Law (Section 43B(h) of the Income Tax Act), payments to registered MSME vendors must be settled within 45 days (if an agreement exists) or 15 days (without agreement); otherwise, the expense is disallowed for tax deduction.
Not always. While a high DPO improves short-term cash reserves, delaying payments too long harms vendor goodwill, loses cash discounts, and risks statutory penalties under Income Tax Section 43B(h).