How To Calculate Days Payable Outstanding in Freshbooks | Arithmix

Calculating Days Payable Outstanding (DPO) is a crucial metric for any business owner or financial analyst. It helps to determine the average number of days it takes for a company to pay its suppliers and vendors. This metric is important because it can provide insight into a company's cash flow and financial health. In this article, we will discuss what DPO is, when it is valuable to calculate DPO, and how to calculate it in Freshbooks.

What Is Days Payable Outstanding?

Days Payable Outstanding (DPO) is a financial metric that measures the average number of days it takes for a company to pay its suppliers and vendors. It is calculated by dividing the accounts payable by the cost of goods sold and multiplying the result by the number of days in the period being measured. The formula for DPO is:

DPO = (Accounts Payable / Cost of Goods Sold) x Number of Days

For example, if a company has $100,000 in accounts payable, $500,000 in cost of goods sold, and the period being measured is 365 days, the DPO would be:

DPO = ($100,000 / $500,000) x 365 = 73 days

This means that on average, it takes the company 73 days to pay its suppliers and vendors.

When Is It Valuable To Calculate Days Payable Outstanding?

Calculating DPO is valuable for several reasons. Firstly, it can provide insight into a company's cash flow. If a company has a high DPO, it means that it is taking longer to pay its suppliers and vendors, which can indicate that it has more cash on hand. Conversely, if a company has a low DPO, it means that it is paying its suppliers and vendors more quickly, which can indicate that it has less cash on hand.

Secondly, DPO can be used to compare a company's payment practices to industry standards. If a company has a higher DPO than its competitors, it may be able to negotiate better payment terms with its suppliers and vendors. On the other hand, if a company has a lower DPO than its competitors, it may need to re-evaluate its payment practices to improve its cash flow.

Finally, DPO can be used to identify potential cash flow problems. If a company's DPO is increasing over time, it may indicate that it is having difficulty paying its suppliers and vendors, which could lead to cash flow problems in the future.

How to Calculate Days Payable Outstanding in Freshbooks

Freshbooks is a cloud-based accounting software that can be used to calculate DPO. To calculate DPO in Freshbooks, follow these steps:

1. Log in to your Freshbooks account and navigate to the "Reports" section.
2. Select "Accounts Payable Aging" from the list of reports.
3. Select the date range for the period you want to measure.
4. Divide the total accounts payable by the total cost of goods sold for the period being measured.
5. Multiply the result by the number of days in the period being measured.
6. The result is the DPO for the period being measured.

By following these steps, you can easily calculate DPO in Freshbooks and use this metric to gain insight into your company's cash flow and financial health.

How Do You Calculate Days Payable Outstanding in Freshbooks

Freshbooks itself isn’t naturally geared towards letting you calculate complex metrics like Days Payable Outstanding. As an alternative, teams typically use products like Arithmix to import data from Freshbooks and build out dashboards.

What is Arithmix?

Arithmix is the next generation spreadsheet - a collaborative, web-based platform for working with numbers that’s powerful yet easy to use. With Arithmix you can import data from systems like Freshbooks, combine it with data from other systems, and create calculations like Days Payable Outstanding.

In Arithmix, data is organized into Tables and referenced by name, not by cell location like a spreadsheet, simplifying calculation creation. Data and calculations can be shared with others and re-used like building blocks, vastly streamlining analysis, model building, and reporting in a highly scalable and easy to maintain platform. Data can be edited, categorized (by dimensions) and freely pivoted. Calculations are automatically copied across a dimension - eliminating copy and paste of formulas.

Arithmix is fully collaborative, giving your entire team access to your numbers and the ability to work together seamlessly.

Calculating Days Payable Outstanding in Arithmix

Calculating metrics like Days Payable Outstanding is simple in Arithmix. Once you've created your free account, you’ll be able to import your Freshbooks data, and use it to create natural language formulas for metrics like Days Payable Outstanding.

Arithmix is designed to give you the power to build any calculations you want on top of your Freshbooks data, while also being easy to use and collaborate on. You can share your dashboards with users inside and outside of your organisation, making it easy to empower your whole team.