What Is DSO (Days Sales Outstanding)?
DSO (days sales outstanding) is the average number of days it takes a company to collect payment after a sale is made on credit. A lower DSO means faster collections and stronger cash flow; a rising DSO signals customers are paying more slowly.
What DSO is and why it matters
DSO turns the accounts receivable balance into a time measure, answering "how long is our cash tied up in unpaid invoices?" It's a headline metric for collections efficiency and working-capital health. Trends matter more than the raw number: a climbing DSO warns of loosening credit terms, weakening customers, or slipping collections discipline, all of which strain cash flow. Comparing DSO to a company's payment terms (say, Net 30) shows whether customers are actually paying on time.
A worked example
A company has $150,000 in accounts receivable and $600,000 in credit sales over a 90-day quarter. DSO = (accounts receivable ÷ total credit sales) × number of days = ($150,000 ÷ $600,000) × 90 = 22.5 days. If the company's terms are Net 30, a DSO of 22.5 is healthy — customers are paying, on average, ahead of the due date. If DSO climbed to 45, collections would be lagging well past terms.
How firms handle it today
Firms calculate DSO from reconciled receivables and sales data and track it over time, using it alongside the aging report to prioritize collections and advise clients on cash flow.
Related terms
- Accounts receivable
- Aging report
- Cash flow
- Net 30
- Working capital
FAQ
What's the DSO formula?
(Accounts receivable ÷ total credit sales) × number of days in the period.
What is a good DSO?
It depends on your payment terms — a DSO at or below your terms (e.g., under 30 for Net 30) is healthy. Lower is generally better.
Why does DSO matter?
It measures how quickly you turn credit sales into cash; a rising DSO strains cash flow and signals collection problems.