Days payable outstanding

Days payable outstanding is trade payables divided by cost of sales for the period, multiplied by the days in the period, and some practitioners use purchases instead where the disclosure allows it. It is the only component of the cash conversion cycle that works in the company's favour, because a supplier waiting to be paid is funding the business at no charge.

Stretching it is the fastest working capital lever there is and the one with the most disguised cost. Losing early settlement discounts is a direct price increase. Being a slow payer weakens the company's position on terms, allocation and priority when supply is short, and in a concentrated supply chain that is a real operating risk rather than a theoretical one.

Reverse factoring, also called supply chain finance, is the version that needs naming. A bank pays the supplier early and the company repays the bank later, so the days stretch a long way while the supplier is unharmed. The economic substance is borrowing, the disclosure has historically been inconsistent, and a sudden jump in days payable with no change in commercial terms is the tell.

A rising figure that is not explained by either of those is worth taking seriously in a distressed context. Suppliers are usually the first creditor a company under pressure stops paying, so an unexplained lengthening is one of the earliest visible symptoms of a liquidity problem.