Days Sales Outstanding
Average days to collect payment after a sale.
Days sales outstanding (DSO) measures the average number of days it takes to collect payment after a sale. Lower DSO means faster cash conversion and better liquidity. DSO varies by industry—B2B companies often have higher DSO than B2C. Tracking DSO trends over time reveals whether collection efficiency is improving or deteriorating.
Formula
DSO = (Accounts Receivable ÷ Total Credit Sales) × Number of DaysExample
A consulting firm with $100,000 in monthly revenue and $150,000 in accounts receivable has a DSO of 45 days, meaning it takes an average of 45 days to collect after invoicing.
Why It Matters for Your Business
High DSO ties up cash in unpaid invoices, directly impacting your ability to pay expenses—reducing DSO by even a few days can significantly improve cash flow.
Practical Tips
- •Benchmark your DSO against industry averages and set a target to improve it.
- •Implement early payment discounts to motivate customers to pay faster.
Related Terms
More Invoicing Terms
AR Aging
A report categorizing outstanding invoices by age.
Billing Cycle
The recurring period between billing statements.
Credit Memo
A document reducing the amount owed by a customer.
Invoice
A document requesting payment for goods or services.
Late Fee
A charge applied when payment is not received by the due date.
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