Every day an invoice stays open is money tied up in the business instead of sitting in the bank. DSO, DPO and inventory days determine how much liquidity your working capital locks up — and they are one of the few levers that work without new financing.
DSO, DPO and the cash conversion cycle
Three metrics describe how fast capital flows through current assets: DSO (Days Sales Outstanding) — the average time until customers pay. DPO (Days Payable Outstanding) — how long you take to pay suppliers. DIO (Days Inventory Outstanding) — how long goods sit in stock.
Together they form the cash conversion cycle: DSO + DIO − DPO. The shorter the cycle, the less cash is tied up. A cycle of 60 days means that, on average, two months of pre-financing sit between paying for purchases and receiving cash from customers.
Reducing days sales outstanding (DSO)
The fastest lever usually sits with receivables: invoice quickly instead of batching, put clear payment terms on every invoice, run a consistent dunning process with fixed stages and — where it pays off — use early-payment discounts as an incentive. At meaningful revenue, a few days off DSO free up six-figure amounts immediately.
Using days payable outstanding (DPO) wisely
On the other side it helps to actually use the payment terms you have agreed — without straining supplier relationships or forfeiting cash discounts. The art is the balance: stretch DPO where it costs no discount, and pay early where the discount earned beats the financing cost.
To put the effect in context — example at €12m revenue and €7m purchasing volume:
| Measure | Effect | Cash freed up |
|---|---|---|
| DSO −5 days | faster inflows | ~ €164,000 |
| DPO +5 days | longer terms | ~ €96,000 |
| DIO −3 days | leaner inventory | ~ €58,000 |
| Total | ~ €318,000 |
LiquidityLens calculates DSO and DPO automatically from receivables and payables — and shows instantly how a change flows through to the 13-week forecast.
See the Liquidity Control Sprint