Glossary
DSO and DPO
DSO (Days Sales Outstanding) and DPO (Days Payable Outstanding): the two indicators that measure average collection time from clients and payment time to suppliers.
What are DSO and DPO
DSO (Days Sales Outstanding) indicates how many days on average the company takes to collect from sales. The higher it is, the more liquidity is tied up in receivables.
DPO (Days Payable Outstanding) indicates how many days on average the company takes to pay its suppliers.
How to calculate them
DSO = (Receivables / Annual revenue) × 365
DPO = (Payables / Annual purchases) × 365
Why the gap matters
The difference DSO – DPO measures the number of days the company must finance with its own resources. If DSO = 90 and DPO = 30, the gap is 60 days — and on €3.5M revenue, that means roughly €575,000 in permanent financing needs.
Reducing DSO and/or increasing DPO improves cash flow without touching margins.
Learn more: 90-day payment terms: how to avoid running out of cash | Cash flow