DSO and DPO sound like jargon, but they answer two everyday questions: how long do customers take to pay me, and how long do I take to pay my suppliers? The gap between the two decides whether you’re funding your customers out of your own cash.
What it means: on average, how many days pass between invoicing a customer and getting paid.
How to work it out: accounts receivable ÷ revenue for the period × days in the period.
Example: you invoiced $90,000 over the last 90 days and $45,000 is still unpaid today. $45,000 ÷ $90,000 × 90 = 45 days.
Where the numbers are in QuickBooks Online: accounts receivable is the total on the A/R Aging Summary; revenue is Total Income on the Profit and Loss for the same period.
How to read it: compare it with your payment terms, not with other businesses. Net 30 terms and a DSO of 45 means customers pay about 15 days late on average. The aging report tells you which ones.
What it means: on average, how many days you take to pay suppliers.
How to work it out: accounts payable ÷ cost of goods sold for the period × days in the period.
Example: your cost of goods sold over 90 days was $60,000 and you owe suppliers $20,000 today. $20,000 ÷ $60,000 × 90 = 30 days.
One caution: service businesses often have little or no cost of goods sold, which makes DPO look huge. If that’s you, judge payables from the A/P aging instead.
If DSO is 45 and DPO is 30, you pay suppliers about 15 days before your customers pay you, and you fund that gap from your own cash. Shortening DSO (clearer terms, faster invoicing, a reminder on the first day overdue) usually frees more cash than stretching DPO, and it doesn’t strain supplier relationships.
Both numbers move with the period you pick, so work them out the same way every month or the trend means nothing. MorningSync’s Metrics file shows DSO and DPO for your chosen period next to the period before, with the A/R and A/P aging alongside, updated in Excel every morning. See the sample files or start a 14-day free trial.