What does your payment cycle really cost you?
Measure your DSO, DPO and DIO, your cash conversion cycle and the euros your customer receivables tie up every year.
DSO / DPO & cash cycle simulator
Measure your customer and supplier payment days, your cash conversion cycle and what your receivables really cost you.
Cost of money you use to carry your receivables
Days you aim to cut from your customer payment delay
Indicative ratios on a base of 365 days. Reason on average outstanding balances, not a single closing snapshot.
Your cash cycle
Quick answer
How do you calculate DSO, DPO and the cash conversion cycle?
DSO = trade receivables incl. VAT ÷ revenue incl. VAT × 365; DPO = trade payables incl. VAT ÷ purchases incl. VAT × 365; DIO = inventory ÷ cost of goods sold × 365. The cash conversion cycle equals DSO + DIO − DPO. Example: €120,000 of receivables on €600,000 of revenue incl. VAT gives a DSO of 73 days; with a DIO of 73 days and a DPO of 97.3 days, the cycle is 48.7 days to finance.
- DSO (customer days)
- Receivables incl. VAT ÷ revenue incl. VAT × 365
- DPO (supplier days)
- Payables incl. VAT ÷ purchases incl. VAT × 365
- Cash conversion cycle
- DSO + DIO − DPO
Reviewed by Samuel Hayot, chartered accountant (Ordre des experts-comptables), last updated
DSO, DPO, DIO: three delays that shape your cash
DSO (Days Sales Outstanding, délai moyen de règlement clients) measures how many days of revenue your customers still owe you. DPO (Days Payables Outstanding, délai moyen de paiement fournisseurs) measures how many days of purchases you still owe suppliers. DIO (Days Inventory Outstanding, also called DSI or DOH) measures how many days of consumption sit in stock.
The cash conversion cycle (CCC) combines all three: DSO + DIO − DPO. It is the number of days each euro paid to buy stays tied up before coming back as a customer payment. The longer it is, the higher your working capital requirement (besoin en fonds de roulement); a negative cycle means suppliers are funding your operations.
DSO and DPO are not symmetrical. A high DSO is almost always a cost (financing, bad-debt risk); a high DPO is only good news if it results from negotiated terms that comply with French law. Paying suppliers beyond the legal cap exposes you to late-payment interest, the €40 fixed recovery fee per invoice and administrative fines, which foreign-owned groups applying home-country payment runs sometimes overlook.
DSO, DPO, DIO and cash cycle formulas
- DSO (simple method)
- DSO = trade receivables incl. VAT ÷ annual revenue incl. VAT × 365
- DPO
- DPO = trade payables incl. VAT ÷ annual purchases incl. VAT × 365
- DIO (DSI, DOH)
- DIO = inventory ÷ cost of goods sold excl. VAT × 365
- Cash conversion cycle
- CCC = DSO + DIO − DPO
- Cash freed by a lower DSO
- Cash freed = DSO days saved × revenue incl. VAT ÷ 365
- Annual cost of receivables
- Cost = receivables incl. VAT × short-term financing rate
- DSO by countback (exhaustion method)
- Deduct last month’s revenue incl. VAT from receivables, then the month before, until exhausted; DSO = days of fully absorbed months + fraction of the last month
The simulator works on 365 days, comparing balances incl. VAT with flows incl. VAT (inventory is compared with cost of goods sold excl. VAT). It uses the simple method on a closing balance. Its legal alerts compare both DSO and DPO with the 60-day cap. The “cost of receivables” applies your financing rate to the whole balance: it is an order of magnitude of the opportunity cost, not an accounting expense.
Calculate your cash cycle in 5 steps
The formulas are simple; the quality of the figure comes from consistency between balances and flows. This is the method we apply to a trial balance or monthly statement.
- 1
Gather balances and flows for the same period
Balances: customer ledger (account 411, bills receivable and invoices to be issued, excluding receivables sold without recourse), supplier ledger (account 401, invoices not yet received), inventory. Flows: revenue incl. VAT, purchases incl. VAT (goods, materials, subcontracting and overheads paid to the same suppliers) and cost of goods sold excl. VAT over the last 12 months.
- 2
Compute DSO, DPO and DIO
Apply the three formulas with a single convention (incl. VAT for customers and suppliers, excl. VAT for inventory). If the business is seasonal, replace the closing balance with an average of monthly balances, or use the countback method for DSO.
- 3
Assemble the conversion cycle
CCC = DSO + DIO − DPO. Multiply it by daily cost of goods sold to get an order of magnitude of the cash needed by the cycle, and compare it with your accounting working capital requirement.
- 4
Check the terms against the legal cap
A DSO above 60 days points to customers paying beyond what the law allows, or to overly long terms of sale. A DPO above 60 days means you are paying late yourself: a legal risk, not a lever.
- 5
Break it down by customer and supplier
A global DSO often hides two or three customers paying at 90 days. Sort overdue receivables by age (not due, 0 to 30 days, 30 to 60, over 60): that aged balance drives the collection plan.
Worked example: an SME with €600,000 revenue incl. VAT
Take the simulator default values: €600,000 revenue incl. VAT, €300,000 purchases incl. VAT, €250,000 cost of goods sold excl. VAT, €120,000 trade receivables, €80,000 trade payables, €50,000 inventory, a 6% financing rate and a target DSO reduction of 10 days.
| Indicator | Calculation | Result |
|---|---|---|
| DSO | 120,000 ÷ 600,000 × 365 | 73.0 days |
| DPO | 80,000 ÷ 300,000 × 365 | 97.3 days |
| DIO | 50,000 ÷ 250,000 × 365 | 73.0 days |
| Cash conversion cycle | 73.0 + 73.0 − 97.3 | 48.7 days |
| Annual cost of receivables | 120,000 × 6% | €7,200 |
| Cash freed if DSO −10 days | 10 × 600,000 ÷ 365 | €16,438 |
| Financing cost saved | 16,438 × 6% | €986 a year |
| DSO by countback (other scenario) | December €70,000, November €45,000, October €60,000: 31 + 30 + 5,000 ÷ 60,000 × 31 | 63.6 days |
Reading: a 48.7-day cycle looks reasonable, but it partly relies on a DPO of 97.3 days, above the 60-day legal cap: the business funds its operations by paying suppliers late, with a risk of penalties and inspection. On the customer side, a DSO of 73 days is also above 60 days. The priority is therefore not to stretch DPO further but to bring DSO under 60 days: saving 13 days would free about 13 × 600,000 ÷ 365 = €21,370 of cash, enough to pay part of the suppliers on time. The last row shows that with a countback method, the same €120,000 balance can give a different DSO depending on sales seasonality.
French legal benchmarks 2026: payment terms and sanctions
These rules govern both your DSO (what customers owe you) and your DPO (what you owe). They apply between businesses, subject to sector-specific regimes.
| Rule | Benchmark | Source |
|---|---|---|
| Default term (no agreement) | 30 days after receipt of goods or completion of the service | Commercial Code, art. L441-10 |
| Maximum agreed term | 60 days from invoice date | Commercial Code, art. L441-10 |
| Possible derogation | 45 days end of month, if expressly stipulated and not manifestly abusive | Commercial Code, art. L441-10 |
| Summary (periodic) invoices | 45 days from invoice date | Commercial Code, art. L441-10 |
| Carriage of goods | 30 days from invoice date | Entreprendre.service-public.fr |
| Default late-payment rate | ECB rate + 10 points: 12.15% in H1 2026, 12.40% in H2 2026 | Entreprendre.service-public.fr |
| Minimum late-payment rate | 3 times the legal interest rate, i.e. 8.25% | Entreprendre.service-public.fr |
| Fixed recovery fee | €40 per invoice paid late, due automatically | Entreprendre.service-public.fr |
| Administrative fine | Up to €75,000 for an individual and €2 million for a company, doubled for repeat offences | Entreprendre.service-public.fr |
Rates and amounts as at 26 September 2026, based on the Entreprendre.service-public.fr page updated on 7 August 2026. Other specific terms exist (perishable food, some seasonal sectors): check the regime that applies to your business.
Levers to shorten your cash cycle
- Track DSO monthly with an aged balance by customer: an annual DSO discovered at year-end comes too late to act on.
- Invoice on delivery or completion and require a deposit on order for long projects: each day of invoicing delay adds to DSO.
- Show on every invoice the due date, the late-payment rate and the €40 fixed recovery fee, then actually apply these clauses to repeat late payers.
- Industrialise reminders (before due date, D+1, D+15, formal notice) and offer direct debit or online payment.
- Negotiate longer supplier terms within the legal cap, in exchange for volumes or commitments, rather than paying late.
- Reduce DIO by reviewing slow-moving stock and reordering more often: it is often the forgotten lever of the cycle.
- Use e-invoicing, mandatory for receipt by all French businesses since 1 September 2026, to secure invoice submission dates and track their status.
Common mistakes when calculating DSO and DPO
Comparing a balance incl. VAT with revenue excl. VAT
Dividing receivables incl. VAT by revenue excl. VAT inflates DSO by 20% for a standard-rate business: €120,000 against €500,000 excl. VAT gives 87.6 days instead of 73. Keep the same basis in numerator and denominator.
Computing DPO on goods purchases only
Trade payables also include subcontracting, rent, fees and overheads. Comparing all of them with goods purchases only overstates DPO and gives a false sense of headroom.
Ignoring seasonality
Strong December sales swell the closing balance and therefore the simple DSO. The countback method, or an average of monthly balances, corrects that bias.
Treating a high DPO as a performance
A 90-day DPO achieved by paying late is not a management lever but a debt due with penalties. It is also paid for in supplier relationships and less favourable purchasing terms.
Forgetting factored receivables
With factoring, receivables sold leave the balance sheet and the accounting DSO falls without customers paying any faster. To measure real payment behaviour, add the factored balance back into the calculation.
Frequently asked questions about DSO, DPO and the cash cycle
What is the DPO formula in accounting?
DPO = trade payables incl. VAT ÷ annual purchases incl. VAT × 365. Payables come from the balance sheet (account 401 and invoices not yet received), purchases from the income statement, grossed up for VAT. Example: €80,000 of payables for €300,000 of purchases incl. VAT gives a DPO of 97.3 days.
What is the difference between DSO and DPO?
DSO measures how long your customers take to pay you; DPO measures how long you take to pay suppliers. The gap between them, adjusted for inventory days, sets your cash need: a 73-day DSO against a 45-day DPO leaves 28 days to finance, before counting stock.
What does DSO + DIO − DPO mean?
It is the cash conversion cycle: the number of days between paying a supplier and collecting from the related customer. With a DSO of 73 days, a DIO of 73 days and a DPO of 97.3 days, it equals 48.7 days. A negative cycle means suppliers are funding operations.
What is the countback method for DSO?
You deduct last month’s revenue incl. VAT from receivables, then the previous month’s, until the balance is exhausted. With €120,000 of receivables and sales of €70,000 in December, €45,000 in November and €60,000 in October, DSO is 31 + 30 + 2.6 = 63.6 days. The method reflects seasonality.
What is a good DSO?
A good DSO stays well below the 60-day legal cap from invoice date and close to your own payment terms. If your terms are 30 days and your DSO reaches 50 days, the 20-day gap measures how late your customers really pay, hence how effective your collection is.
Should DSO be calculated including or excluding VAT?
Including VAT if receivables include VAT, which is the case on the balance sheet. Comparing receivables incl. VAT with revenue excl. VAT overstates DSO by about 20% for a standard-rate business. For exempt or export customers no VAT applies and both bases match.
What penalties apply to late payment in France?
Unless the contract sets a rate, penalties equal the ECB rate plus 10 points, i.e. 12.40% in H2 2026, and cannot fall below 3 times the legal interest rate. A €40 fixed recovery fee per invoice is added. A €10,000 invoice paid 30 days late generates about €102 of interest plus €40.
How much cash does a lower DSO free up?
Each DSO day saved frees one day of revenue incl. VAT: revenue ÷ 365. For €600,000 of revenue incl. VAT, one day is worth €1,644 and ten days €16,438. At a 6% financing rate, that avoids about €986 of financing costs every year.
Can you stretch DPO to improve cash?
Yes, but only through negotiation and within the legal cap: 60 days from invoice date, or 45 days end of month if stipulated. Beyond that you face late-payment interest, the €40 fee per invoice and an administrative fine of up to €2 million for a company.
Sources and references
Reading your cash cycle
Your cash conversion cycle (CCC) is the number of days between paying your suppliers and collecting from your customers. It combines three ratios: DSO (how long customers take to pay), DPO (how long you take to pay suppliers) and DIO (how long inventory sits). The shorter the cycle, the less cash your operations freeze. Cutting your DSO by a few days frees real cash, with no new debt.
The ratios that drive your cycle
- DSO = trade receivables / revenue (incl. VAT) × 365
- DPO = trade payables / purchases (incl. VAT) × 365
- DIO = inventory / cost of goods sold × 365
- Cash conversion cycle = DSO + DIO − DPO
- Legal cap (art. L441-10): 60 days date of invoice or 45 days end of month
Why run this simulator?
A clear cash cycle lets you:
- See in euros what a high DSO costs you every year in financing.
- Quantify the cash freed by cutting your customer payment days.
- Check your customer terms stay within the legal cap before a dispute.
- Prioritise between collection, supplier terms and inventory rotation.
A chartered accountant to shorten your cash cycle
Hayot Expertise sets up the collection routines and dashboards (DSO/DPO, dunning, factoring) that free up cash. We act on the cycle, we do not just measure it.