![]() ($8.5 million / $67 million) x 365 days = 46.3Ĭompanies with the most clout can negotiate extended payment terms with suppliers one of the most notable examples is Apple, Inc. For example, if accounts payable on a company’s end-of-year balance sheet is US$8.5 million, and it had a COGS of $67 million, its DPO would be 46.3: The most common DPO formula entails dividing accounts payable by cost of goods sold (COGS) and multiplying by the number of days measured. That figure has escalated in recent years, and the most powerful companies often negotiate for more wiggle room, regardless of financial status. The Hospital ISM ® Report On Business ® will be further examined later, but first is a look at the DPO metric, which indicates average time (in days) in which companies pay bills. “There was so much going on early in the pandemic to get new suppliers and products - now that (COVID-19 cases) are subsiding and hospitals aren’t sourcing from Timbuktu, it’s time to take a breath, clean up the data and systems a bit so suppliers can get paid more efficiently.” “Sometimes, when there’s a burden on the supply chain on the front end, that leaves accounts payable to clean up on the back end,” says Nancy LeMaster, MBA, Chair of the Institute for Supply Management ® Hospital Business Survey Committee. The Hospital ISM ® Report On Business ® includes a Days Payable Outstanding Index, and it suggested in March that, after months of relatively quick payments so as not to risk supply continuity, some accounts-payable departments might have slowed down to review documents and processes. During the coronavirus (COVID-19) pandemic, those accounts-payable responsibilities became even more critical, and surveys tried to monitor changes in payment terms between companies, suppliers and customers.įew, if any, industries have had to keep more DPO plates spinning than health care, as hospitals and other facilities scrambled to source personal protective equipment (PPE) and other medical equipment, often from non-traditional suppliers. ![]() While it has been a traditional gauge of a company’s cash flow, in recent years, DPO has accounted for other dynamics of the bill-paying process, including (1) ensuring that documents match, (2) managing working capital and (3) navigating supplier relationships. Such measurements are calculated from several moving parts, and a “poor” reading is not necessarily a sign of trouble.ĭays payable outstanding (DPO), which measures how quickly companies pay bills, fits that criteria. The Monthly Metric has covered several supply management analytics, particularly in the financial realm, that require looking beyond a composite number.
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