Lengthening Payable Cycle: GDS calculates
Days Payable Outstanding as the average payable balance, divided by total purchases in terms of operating and capital expenditures, multiplied by 360.
While days sales outstanding and
days payable outstanding improved only slightly, days inventory on hand showed no change at all.
The AP Management Dashboard will be packed with drill-down reports, allowing AP management to view KPIs such as
days payable outstanding (DPO), invoice processing efficiency by period, and invoices processed by type.
Morgan's executive director--Treasury Services Advisory LATAM, highlighted efforts by his firm to help clients reduce their days sales and
days payable outstanding levels.
While there is obviously additional cost and administrative effort for the UK importer in providing this, the very fact it is putting forward a secure payment vehicle may enable the company to negotiate a marginal reduction in the unit price of the goods purchased, or increase their
days payable outstanding, and thus their working capital position, by requesting additional credit terms on the strength of the LC.
With the usual sources of working capital availability constrained, customers will be trying to enhance liquidity through any means, including by stretching payables; over the same time frame, the average
days payable outstanding for the hospital/surgical center index has already increased from 30 to 38.
Treasury professionals typically manage working capital through
days payable outstanding (DPO) and by optimizing the use of cash.
"We instilled a 'days' mentality," Wang says, "heightening awareness throughout the company of the days it takes to convert inventory into sales and of the gap between days sales outstanding and
days payable outstanding."
Aberdeen also has identified four key performance criteria to distinguish Best-in-Class companies related to SCF: (1) average cash conversion cycle; (2) relative improvement in the cash conversion cycle over the past year; (3)
Days Payable Outstanding (DPOs); and Days Sales Outstanding (DSOs).
SCF presents the opportunity to optimize working capital, largely in the context of extending payment terms, thus increasing
days payable outstanding (DPOs).
The Trade Payables program increases
Days Payable Outstanding thereby creating "free working capital." The buyer receives extended payment terms from the Trade Payable service provider who in turn pays the supplier within 48-72 hours of the transaction.
And finally,
days payable outstanding (DPO) and working capital will improve as customers won't have reason to hold payment.
