CFO Magazine reports large U.S. companies had unusually high days payable outstanding (DPO) in their last reported financial quarter.

CFO reached out to Henry Ijams, managing director at PayStream Advisors for insight on why analysis by S&P Capital IQ shows over 75 public companies with high days payable outstanding (DPO).  DPO is a financial metric that represents the average number of days a company takes to pay outstanding invoices.

While a high DPO can help a company optimize its working capital, too high a DPO can indicate financial troubles.  “DPO is a tool the CFO can play with a little bit to boost working capital by slowing down payables,” said Henry Ijams.  “For each dollar the company doesn’t pay out to suppliers it is getting a free loan.”

As more and more companies implement accounts payable automation they can utilize what Ijams calls “payables management by design,” where companies pay suppliers on different terms, depending on how strategic the supplier is to the business, as well as the supplier’s financial condition. Payables by Design is one element of PayStream’s Discount Management consulting methodology to help clients optimize discounts and working capital.

What’s the risk to high DPO? According to Ijams “Vendors will charge more for their products, won’t ship to you as fast and they may put the company on credit hold.  They also might be less responsive to you in a competitive market – they will take care of the customers that treat them better.”

Click here to view the entire CFO article, including the list of companies reported that are taking longer to reimburse their creditors.

DPO can be a risky balancing act.  Download a complimentary copy of one of PayStream Advisors reports to learn about increasing working capital, without increasing DPO.  A recent 2013 report titled Dynamic Discount Management: Moving Towards Mainstream covers opportunities in payables and how dynamic discounting, trade financing and buyer-initiated payments can help companies increase working capital.