How to Extend DPO Without Hurting Vendor Relationships

Stretching out your Days Payable Outstanding (DPO) could be wonderful for your cash flow, but do it without regard, and you risk ruining the relationship with the vendors who keep your business afloat. So how do you strike the balance?

Let's take a walk through how DPO works, the risk of taking it too far, and a viable solution that maintains both your books and your vendor relationships in good working condition.

What is DPO and Why Does It Matter?

Days Payable Outstanding (DPO) refers to the number of days, on average, your company take to pay its suppliers. The greater the DPO, the more room there is for your cash flow - provided that your vendors agree.

Why would companies attempt to stretch DPO?

The following are some typical reasons:

• Enhance cash flow: Pushing out payments serves to keep money in the hands of companies longer, which is particularly helpful when revenues are low.
• Pay short-term obligations on time: Time to pay suppliers can assist in paying salaries, EMIs, and other short-term obligations.
• Improve working capital effectiveness: DPO optimisation can drive an improved working capital position and a 5% improvement in cash flow cycles.
• Better negotiate with financiers: Longer DPO provides better bargaining strength in negotiating credit terms or working capital lines.
• Match outflows with inflows of cash: Companies synchronise customer collections with supplier payments to level out cash management.

A longer DPO may be good — but only if done strategically and openly, so it doesn't put undue pressure on supplier trust.

The Risk of Extending DPO

Stretching your terms of payment too far might look good on paper — until your supplier starts sending reminder notices or holds up delivery. Here's where things can go wrong:

Strained relations – Your supplier will feel undervalued.

Tighter credit terms – They can cut your credit period or ask for advance payments.

Delivery delays – You can clog up your entire supply chain.

The Win-Win Solution: Invoice Discounting

If you want to extend DPO without making your vendors feel displeased, consider invoice discounting a money alternative in which your vendors get paid early and you keep paying late. Here's how it works-

Step 1: Vendor issues Invoice

Step 2: Vendor requires early payment

Step 3: Vendor uses Invoice Discounting

Step 4: Financier pays Vendor early (e.g., Day 5)

Step 5: Buyer (you) pays Financier later (e.g., Day 60)

Sellers get paid in cash, so they don't have to worry about getting paid on time. Your business also gets to stretch out payments, which enhances cash flow. The deal also serves to strengthen vendor relationships since neither side will experience monetary stress or tension.

Improving DPO is a great way to keep your money flexible. But at the cost of your vendor relationships? That's a lose-lose.

Instead, use mechanisms like invoice discounting to make it a win-win situation. You keep your capital for longer, and your suppliers receive payment sooner — everyone is a winner.

Start small. Select some of your suppliers to pilot invoice discounting with and see what happens.

Platforms like Clear Invoice Discounting make this easy and fast to implement. Liquidity-constrained enterprises can extend DPO without debt!

How Clear Enables Strategic DPO Extension

Clear provides an intuitive, enterprise-grade platform, Clear Invoice Discounting, that turns the traditional model of early payments on its head. Think of it as a dynamic marketplace for liquidity, where vendors signal when they want to get paid, and treasury teams decide how and when to deploy funds — whether from internal cash or external financiers. All of this happens seamlessly via auto-synced invoices, with real-time dashboards, and zero email follow-ups or spreadsheet gymnastics.

Why you should choose Clear for invoice discounting-

• Maximise ROI on Idle Cash: Earn 12-18% returns on surplus funds—4-5x higher than traditional FDs.
• Boost EBITDA Effortlessly: Leverage existing cash for vendor financing—unlock higher returns and grow profits.
• Make Your Money Work Harder: Generate 2-5x ROI from idle funds, improving returns without additional risk or effort.

Salient features of Clear Invoice Discounting are given below-

• Vendor-friendly discounting interface: Simple, WhatsApp-based flow enables vendors to access early payments with no apps or training.
• ERP integration and automation: Native integration with SAP, Oracle, and MS Dynamics ensures real-time sync and automated reconciliation.
• Transparent discounting terms: Our dynamic engine adjusts rates by invoice age, vendor type, tenor, and funding source for fairness.
• Easy onboarding for vendors: Vendors receive funds within T+1 of approval, driving quick adoption and better cash flow.
• Customisable financing options: Multi-funder setup via banks, NBFCs, or Clear’s rails with GRN-based checks for risk compliance.

With Clear, you can generate returns from the same timing or extend DPO without damaging relationships.

Case Study: How a Consumer Durables company extended DPO without debt

Challenges:

• Low vendor participation in discounting programs.
• The company needed to increase EBITDA and optimise working capital without increasing debt obligations.

How Clear Helped:

• ERP-Synced Vendor Portal: Clear created a fully digitised portal, enabling daily syncing with the client’s purchase register, which streamlined vendor communication.
• Analytics-Driven Discounting: Clear’s bidding model used data-driven floor rates to provide flexibility and incentivise vendors.
• Off-Balance Sheet Financing: The financing was structured to remain off-balance sheet, ensuring the program did not increase debt obligations.

The Impact:

• 13% annualised return from the program.
• 7% higher than the cost of credit.
• Achieved ₹20 Crores throughput monthly.
• Substantial increase in vendor participation and a more diversified capital base.
• Enabled extension of DPO by 20% without affecting their treasury or additional debt.