US companies took an average of 56.7 days to pay suppliers in 2017, according to Hackett Group data. By 2020, that number hit 62 days — an all-time high. Procurement teams celebrated the working capital improvement. But the Hackett Group's own analysis now warns that extending payment terms "masked" deteriorating inventory and receivables performance. The DPO lever reached its limit in 2022: DPO fell from 56.5 to 55.9 days — suppliers pushed back, and buyers had no more room to stretch.

A 2024 study published in the International Journal of Production Research quantified what suppliers have known for years: systematic payment term extensions are "generally a zero-sum or even negative-sum game." A 1-day increase in average payment terms corresponds to a -0.036% performance decrease for buyers that do not use supply chain finance (SCF). For a company with $1 billion in procurement spend, that is approximately $360,000 in hidden cost per day of DPO extension.

59 days
Average DPO among 1,000 largest US companies (2025, Hackett Group)
$1.7T
Excess working capital still tied up — DPO alone did not solve it
26%
of companies have stopped working with a buyer or supplier due to payment delays

The 60-day ceiling: when DPO optimization becomes self-defeating

Hackett Group's Q2 2022 analysis declared an inflection point. After a decade of steady DPO growth, the largest US companies "reached the limits of their ability to stretch payables terms." Supply chain bottlenecks, inflation, and geopolitical risk shifted leverage back to sellers. The Hackett Group's 2025 survey confirmed the pattern: DPO rebounded to 59 days, but $1.7 trillion in excess working capital remained — because DPO alone cannot solve structural working capital problems.

BCG's 2024 guidance on payment terms warns that extending terms shifts the financing burden to suppliers who must pay their own employees and vendors on shorter cycles. Sudden or broad-brush extensions can create "a financially harmful cash crunch" for dependent suppliers. BCG explicitly recommends excluding at-risk, small, and diverse suppliers from generic term extension programs.

"Extending payment terms to 120 days or more frees up working capital for big companies. But it can also increase the financial stress on suppliers and ultimately lead to increased product costs." — CFO.com analysis of Unilever's payment term strategy

Supplier price increases are the repayment mechanism

Suppliers do not absorb longer payment terms as a gift to their customers. Academic research confirms they pass the financing cost back through higher product prices. A Journal of Management Analytics model of retailer-supplier dynamics found that payment defaults by the buyer trigger "a price increase from the supplier as a countermeasure." The same logic applies to systematic term extensions: suppliers factor the financing cost into their next quote.

Supply chain finance practitioners confirm this directly. As one expert told SupplyChainBrain: "Whoever is paying the cost is going to recoup that somehow, whether in bad service, hidden hostilities or higher cost." The supplier may not complain — they just price the next contract 2-3% higher to cover their working capital cost. Procurement claims the DPO win. Finance sees the margin erosion. Nobody connects the two.

DPO-maximization approach
Push all suppliers to 90-120 day terms. Celebrate working capital improvement. Ignore supplier price increases in next contract cycle. Discover that 26% of critical suppliers have stopped bidding on new work. Cost of capital arbitrage breaks when reverse factoring costs suppliers 40-60% more than traditional credit.
Segmented payment-term approach
Keep strategic and small suppliers at 30-45 days. Use SCF for suppliers who opt in at buyer's cost of capital (not as a term-extension tool). Track total cost of payment terms: liquidity gains minus lost early-payment discounts, supplier price increases, and supply continuity risk. Model DPO alongside DSO and DIO as three levers, not one.

Supply chain finance is a mitigant, not a license to stretch

SCF has real value. Early adopters of blockchain-enabled SCF platforms decreased payment delays by 47% and enhanced supplier survival rates by 32% during 2020-2022 supply shocks, according to IMF data. Digital SCF programs can give suppliers access to financing at the buyer's (lower) cost of capital — genuine cost-of-capital arbitrage that benefits both sides.

But the evidence is clear that using SCF purely to enable further term extension destroys the value. A 2021 empirical study in the International Journal of Financial Studies found that reverse factoring costs were 40-60% more expensive than traditional credit for suppliers by the end of the sample period. Academic work on extended terms under SCF finds that as payment delays lengthen, "longer terms negatively impact suppliers' ability to benefit from SCF and increase their financing cost and risk."

The Hackett Group's Shawn Townsend put it bluntly: relying on SCF to support DPO stretching is "not the best way" to improve working capital. The 2017 Hackett analysis found that while corporates increased SCF usage, "lengthening payment terms masked those poor performance markers" in inventory and accounts receivable. DPO became a cosmetic fix for deeper operational problems.

The supplier disruption risk procurement does not price

McKinsey research on SME supply chain disruptions found that 68% of disruptions in small-to-medium enterprises stemmed from liquidity shortages, payment delays, or lack of credit access. When a tier-two or tier-three supplier fails because a large buyer stretched terms to 90 days, the disruption cascades up the supply chain. The buyer's DPO improvement of 0.3 days is invisible next to the cost of a production line stoppage.

B2B payment data from 2025 shows the real-world impact: 26% of business decision-makers have stopped working with a buyer or supplier due to payment delays. Over half of manufacturing suppliers report late payments averaging nearly two months. Only 17% of suppliers extend terms beyond 60 days — up from 7%, but still a small minority. The market is rejecting the practice faster than procurement teams are adopting it.

Regulatory pressure is also building. The UK government's position is that "all payments beyond 60 days represent bad practice." European regulatory frameworks increasingly treat terms beyond 60 days as presumptively unfair, requiring express agreement and prohibiting terms that are "grossly unfair" to suppliers. The DPO lever is not just economically self-limiting — it may soon be legally constrained.

What this means in practice

Treat DPO as one of three working capital levers, not the only one. The cash conversion cycle is DSO + DIO - DPO. When DPO improvements "mask" deteriorating DSO and DIO, the cash conversion cycle looks better while the underlying operations worsen. Audit all three together.

Segment payment terms by supplier profile. Strategic suppliers, small suppliers, and suppliers with limited access to capital should be kept at 30-45 day terms or offered early payment in exchange for discounts. BCG's recommendation to exclude at-risk, small, and diverse suppliers from generic term extensions is the minimum viable segmentation.

Model the total cost of payment terms, not just the liquidity gain. A move from 30 to 45 days on €500 million in spend frees approximately €20.5 million in liquidity. But that number must be weighed against lost early-payment discounts (typically 2%), supplier price increases (estimated 1-3% on next contract), and supply continuity risk. In most cases beyond 60 days, the hidden costs exceed the nominal benefit.

Does SCF make payment-term extensions safe for suppliers?

SCF reduces the damage but does not eliminate it. When reverse factoring costs 40-60% more than traditional credit for suppliers, the cost-of-capital arbitrage breaks. SCF works best when the buyer genuinely has a lower cost of capital and shares that advantage — not when it is used to justify pushing terms from 60 to 90 days.

What is the right DPO target?

There is no single number. The Hackett Group data shows an effective ceiling in the mid-50s to low-60s for most sectors. Beyond that, supplier leverage, inflation, and risk force a reversal. Segment by supplier: strategic suppliers at 30-45 days, commodity suppliers can extend further if they have access to SCF at the buyer's cost of capital.

How do you convince finance that shorter payment terms are better?

Run the total-cost model: liquidity gain from terms extension minus lost discounts, supplier price increases, and estimated supply disruption cost. Most CFOs will accept shorter terms when the math shows the extension is destroying more value than it creates. The academic evidence — zero-sum or negative-sum — is on your side.

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Sources

  1. The Hackett Group — Q2 2022 Working Capital Survey Update
  2. The Hackett Group — 2025 Working Capital Survey
  3. BCG — Avoid Hidden Costs of Extending Supplier Payment Terms (2024)
  4. International Journal of Production Research — Supply chain financing theory of the trade payables-performance link (2024)
  5. International Journal of Financial Studies — SCF Cost-Benefit Differentials under Reverse Factoring (2021)
  6. ScienceDirect — How SCF enhances supply chain resilience (2025)
  7. CFO Dive — Suppliers gained clout as DPO dipped: Hackett
  8. The Kaplan Group — 54 Statistics on B2B Payment Delays (2025)
  9. Pinsent Masons — Payment terms: large business should prepare for increased scrutiny
  10. SupplyChainBrain — Understanding the link between finance and the supply chain
  11. CFO.com — How Delaying Payments Can Help Suppliers
  12. PYMNTS — Hackett Report on Corporate Supplier Payments