Dell Earnings Reveal Delayed Payments to Vendors

(MoneyWatch)  Dell (DELL) has enjoyed a long reputation of being tight on operations. But the company can be even tighter with a dollar. According to figures in its 10-K filing for the fiscal year ending in January 2010, released yesterday, Dell is what you might call a very slow payer. Dell takes an average 82 days to pay its invoices. That's a long longer than some of its direct competitors.

Days in accounts payable is a financial measurement of how quickly a company pays its bills. As Dell's 10-K explains it:

DPO is based on ending accounts payable and most recent quarterly cost of sales for each period. DPO is calculated by dividing accounts payable by average cost of goods sold per day for the current quarter (90 days).

In other words, the company notes how big accounts payable has become, divides by the average cost per goods per day for a rough measure of how long it accumulates its financial obligations.

Compare the 82 days to Dell's days of sales outstanding, or DSO, which is the average collection period of receivables. Here's the definition, again from Dell's 10-K:

Days of sales outstanding ("DSO") calculates the average collection period of our receivables. ... DSO is calculated by adding accounts receivable, net of allowance for doubtful accounts, and customer shipments in transit and dividing that sum by average net revenue per day for the current quarter (90 days).

Dell gets its money from its customers in 38 days. The difference of 44 days, or a month-and-a-half, between DPO and DSO represents the amount of time that goes by between Dell getting paid for a product on one hand and then paying vendors for its cost of goods on the other. That is essentially free financing for Dell.

Dell is particularly slow in terms of DPO compared to some of its competitors. According to HP's (HPQ) fiscal 2009 10-K, that company has a DPO of 57 days, versus 48 days DSO, which suggests that HP is getting about 9 days of financing.

Although Apple (AAPL) does not explicitly report DSO or DPO, you can do similar calculations. Apple's accounts payable at the end of its last reported quarter were $6.511 billion. Cost of sales (same as cost of goods) for the quarter were $9.272 billion. Apple reported its quarter as ending December 26 for 87 days in the quarter. That would make Apple's DPO about 61 days, or three weeks faster than Dell.

For Apple's DSO, accounts receivable were $3.090 billion. Net revenue was $15.683 billion. And so, DSO would be 17 days. Even though Apple pays more quickly than Dell, it also gets payment in far more quickly, and so still gets the same financing benefit. It's just another benefit that Apple gets from selling popular products to consumers, who pay immediately.

However, these numbers can be deceptive. For an amount to be in accounts payable, a company must have already recognized the expense. However, if employees delay initial processing of invoices, it might be that the company in question could add significant amounts of time to the actual wait, if not to DPO.

Ship Image: Flickr user Eric Kilby, CC 2.0. Modifications by Erik Sherman.