Calculate your DPO
What is DPO?
DPO (Days Payable Outstanding), or the average payment period, measures the average number of days your company takes to pay its suppliers. It is one of the three pillars of the cash conversion cycle, alongside DSO (collections) and DIO (inventory).
A high DPO means you are financing your operations with free credit from suppliers, which can be an advantage. But there is a limit: an excessive DPO damages commercial relationships and can trigger late-payment interest.
COGS = cost of goods sold or total purchases in the period
For example, with €85,000 in accounts payable and €420,000 of quarterly purchases (90 days): DPO = (85,000 ÷ 420,000) × 90 ≈ 18.2 days — a fairly low DPO.
How to interpret your DPO
There is no universal "ideal" DPO — it depends on the sector and the trading structure. Even so, these are the benchmarks most commonly used by Portuguese SMEs:
| Zone | DPO | Meaning | Cash impact |
|---|---|---|---|
| Too low | < 20 days | Paying too early; losing float | Negative — losing liquidity unnecessarily |
| Optimal | 20–45 days | Good use of supplier credit | Positive — maximises float without risk |
| High | 45–60 days | Stretching credit; relationship tension | Mixed — liquidity gain but rising risk |
| Risky | > 60 days | Likely default; late-payment interest | Negative — penalties and loss of trust |
3 ways to optimise your DPO
- 1Negotiate terms formally
Most SMEs pay out of habit, not by contract. Set 30-to-45-day terms in writing with your main suppliers — many accept with no penalty if the relationship is stable.
- 2Use confirming for flexibility
With confirming, the supplier is paid upfront (via Advanta) and your company pays later, with no relationship tension. You get the best of both worlds: a high DPO for you, early payment for the supplier.
- 3Pay on the exact date — not before, not after
Paying before the due date destroys liquidity for no benefit. Paying after it exposes you to late-payment interest (currently 10.65% p.a. in Portugal). Set up due-date alerts and process payment on the agreed date.
Careful: once your DPO exceeds 60 days you are in the late-payment interest risk zone. In Portugal, the statutory rate for commercial transactions is indexed to the ECB rate and updated every six months. Calculate overdue late-payment interest →
How much does confirming cost your company?
See the real cost of using confirming to extend your payment terms.
Frequently asked questions
Extend your terms with confirming
With confirming, the bank pays your suppliers on time and your company repays in 60 to 90 days. No impact on supplier relationships, no personal guarantees.