How fast does cash flow through the cycle?
№ 230 · DSO / DPO / DIO trend
Definition
MetricDays sales outstanding, days payable outstanding and days inventory outstanding
Unitdays
Three lines (days sales outstanding, payables outstanding, inventory outstanding). Healthy: DPO greater than DSO. Build from receivables/sales, payables/cost, inventory/cost each times days. Working capital is freed when DSO falls and DPO rises. Example: DSO 38, DPO 52, DIO 24 (DPO > DSO is good).
- DSO
- Days sales outstanding. Accounts receivable divided by revenue, multiplied by days in the period.
- DPO
- Days payables outstanding. Accounts payable divided by COGS, multiplied by days in the period.
- DIO
- Days inventory outstanding. Average inventory divided by COGS, multiplied by days in the period.
Benchmarks
| Bottom 30% | Median | Top 30% |
|---|---|---|
| DSO above 65 days, DPO under 45 days, DIO above 90 days | DSO about 47 to 49 days, DPO 59 days in the US and 72.6 in Europe, DIO about 69 days in Europe | DSO under 35 days, DPO above 70 days, DIO under 40 days |
largest 1,000 listed nonfinancial companies in the US and separately in Europe for FY2024, with US DSO cross-checked against 2025 credit manager survey data and January 2026 balance sheet ratios · Hackett publishes DPO for both regions and DSO, DIO and DPO for Europe directly, but gives the US DSO and DIO levels as directional moves rather than absolute figures in the public release. The US DSO of about 47 days used here therefore comes from Atradius credit manager data for the same period, which is a different population, and is corroborated independently by Damodaran's January 2026 receivables ratio of 12.39 percent of sales, roughly 45 days. That is why confidence is medium rather than high despite good sources. The larger trap is the denominator: DPO and DIO computed on sales rather than on cost of sales, as Damodaran's published ratios are, understate both by roughly a third at typical gross margins, and mixing denominators is the most common reason two teams reading the same balance sheet produce DPO figures 20 days apart.
| Category | Bottom 30% | Median | Top 30% |
|---|---|---|---|
| US listed nonfinancials | DSO above 62, DPO under 45 | DSO about 47, DPO 59, cycle 37 days | DSO under 35, DPO above 70 |
| European listed nonfinancials | DSO above 65, DIO above 95 | DSO 48.5, DPO 72.6, DIO 68.9, cycle 44.8 days | DSO under 38, DPO above 85 |
| Software (system and application), US listed | DSO above 80 | receivables at 16.84 percent of sales, about 61 days, negligible inventory | DSO under 45 |
| Grocery and food retail, US listed | DSO above 12 | receivables at 1.75 percent of sales, about 6 days | DSO under 4 |
| Advertising and agency, US listed | DSO above 200 with payables not matched | receivables at 47.38 percent of sales, about 173 days, largely offset by payables at 46.12 percent | DSO under 120 |
When it looks bad
DPO climbs steeply while DSO stays flat, so the three lines fan apart and the improvement in the cycle is entirely borrowed from suppliers, which reverses the moment one of them renegotiates or withdraws a discount.
DPO moves 44 to 71 days across three quarters, DSO holds at 52 and DIO rises 4, so the cycle reads 23 days better and none of it came from the business.
What to do about it
- State the denominator on the chart and use revenue for DSO and cost of sales for DPO and DIO. Mixing denominators is the single most common reason DPO is reported 20 days apart by two teams looking at the same ledger.
- Target the DSO gap rather than the DSO level. Hackett's top quartile runs 18 days ahead of the median, and closing half of that on a $200M revenue base releases roughly $5M of cash once, which is a one-time gain that should be planned for as such.
- Price any DPO extension before taking it. Taking 60 extra days at the cost of a 2 percent prompt payment discount is an implied annual rate above 12 percent, which is usually worse than the credit facility it replaces, and the comparison should be on the chart.
- Add a DIO line by category rather than in aggregate wherever inventory exists. European DIO hitting 68.9 days, a decade high, came from buffer building against supply risk, and an aggregate number cannot distinguish a deliberate buffer from dead stock.
Sources
- The Hackett Group Reports European DSO up 1 percent to 48.5 days, DIO up 4 percent to 68.9 days, its highest level in a decade, and DPO up 3 percent to 72.6 days, giving a cash conversion cycle of 44.8 days. thehackettgroup.com ↗
- The Hackett Group Reports US DPO rebounding to 59 days with a cash conversion cycle of 37 days, while DSO and DIO both worsened slightly, and notes a 9 percent performance gap on DPO between top quartile and median. thehackettgroup.com ↗
- NYU Stern (Aswath Damodaran) Reports receivables at 12.39 percent of sales for US listed nonfinancials, which converts to about 45 days, with software at 16.84 percent or about 61 days, grocery retail at 1.75 percent or about 6 days, and advertising at 47.38 percent or about 173 days offset by payables at 46.12 percent. pages.stern.nyu.edu ↗
- Atradius Reports stability of DSO across many Western European sectors alongside 47 percent of invoices overdue, and more companies reporting inventory build-up than faster turnover. group.atradius.com ↗
- Billed Aggregates the Atradius 2025 barometers to put US DSO at about 47 days and Americas DSO at about 48 days. billed.app ↗
- TechIntelPro (reporting The Hackett Group) Reports the 18-day DSO gap between top and median performers and the 9 percent DPO gap between top quartile and median, valued at $600 billion of receivables opportunity. techintelpro.com ↗
- NYU Stern (Aswath Damodaran) Reports COGS at 65.61 percent of sales for US listed nonfinancials, the denominator required to convert inventory and payables ratios into days on a cost basis rather than a sales basis. pages.stern.nyu.edu ↗
- Atradius Reports average payment terms of 31 to 60 days across Nordic B2B markets with most companies expecting DSO to stay steady on stronger collections focus. group.atradius.com ↗