Days sales outstanding

Days sales outstanding (DSO) estimates how many days of sales are tied up in receivables. Lower DSO generally means faster collections.

It answers a practical question: on average, how long does it take to turn invoices into cash?

DSO is a trend metric. One month spikes; three months of movement tells a story.

A common simplified approach: DSO = (Accounts receivable ÷ Total credit sales in the period) × Number of days in the period.

Example: AR is $30,000. Credit sales over the last 30 days were $45,000. DSO ≈ (30,000 ÷ 45,000) × 30 = 20 days.

Methods vary (ending AR vs average AR). Pick one method and keep it consistent so your comparisons mean something.

Good is relative to your payment terms. If you offer Net 15 and DSO is 18–22, you are likely healthy. If you offer Net 15 and DSO is 45, something is broken.

Enterprise-heavy client mixes often show higher DSO even when you are diligent—because their AP cycles are long. Manage that with deposits and cash planning.

Compare to your own history before obsessing over internet benchmarks for unrelated industries.

Shorter terms, deposits, faster invoicing after delivery, online payments, accurate PO details, and disciplined reminders all pull DSO down.

Fix invoice errors quickly. Resubmitted invoices restart approval clocks.

Stop extending more credit to chronically slow accounts. DSO cannot improve if your client mix gets riskier every quarter.

Estimate your DSO roughly this month with open AR and recent sales.

Choose one process change—reminder cadence or deposits—and recheck DSO in 60 days.

Pair DSO with an aging report so you know whether improvement is real or just shifted between clients.