Glossary · Days sales outstanding (DSO)
What is days sales outstanding (DSO)?
Definition: Days sales outstanding (DSO) measures the average number of days a company takes to collect payment on its sales invoices after issuing them.
The usual formula divides outstanding trade receivables by credit sales for the period and multiplies the result by the number of days in that period. If a company has 2 million outstanding and has invoiced 12 million over the year, its DSO is around 61 days. Some companies calculate it monthly or quarterly to follow the trend more closely.
It is one of the indicators finance directors watch most closely, because it has a direct impact on cash flow: every day of delay in collection is money the company is effectively lending to its customers. A rising DSO can reveal unmanaged disputed invoices, billing errors, poor follow-up of due dates or overly generous payment terms.
Comparing DSO with the agreed payment terms shows how much real delay there is. To reduce it, acting on the process tends to work better than pressing customers: invoicing without delay, requesting the purchase order numbers customers require in good time, resolving disputes quickly and reconciling receipts daily. It is often read alongside days payable outstanding, its supplier-side counterpart.
Example: a company finds that much of its collection delay comes from invoices rejected for lacking a purchase order number; requesting it automatically when each job is closed brings its DSO down.