Days Sales Outstanding (DSO) – the average number of days it takes to collect payment after a sale – is more than a collections metric. It’s a signal, a story and a health check rolled into one.
For private equity or venture capital firms (PE/VC), DSO reflects stability and growth readiness.
For the board, it reveals operational discipline and financial health.
For the CFO office, it serves both as a measurement of business success and a mandate to keep cash flowing.
Sales teams see it as a reflection of customer satisfaction, while operations and support connect it to smooth, timely service.
Each group looks at DSO through a different lens, often in conjunction with metrics like Days Payable Outstanding (DPO), inventory turnover and overall cash conversion cycle to get a comprehensive view of a company's working capital management.
Let’s break down why DSO matters and what it reveals to each group watching your numbers.
What PE/VC firms look for in DSO.
For private equity and venture capital groups, DSO is one of the first metrics they look at when considering a new company to invest in. It gives a direct snapshot of cash flow health and operational efficiency.
Investors want to see stability and predictability. If your DSO fluctuates, it suggests inconsistency in your operations – a potential red flag. They prefer businesses that can forecast cash flow accurately and maintain a stable working capital cycle. Generally, a DSO of 40 days or less signals healthy cash flow, though ideal benchmarks vary by industry.
PE/VC firms value operational efficiency because it translates to lower costs and stronger margins. Low DSO is a mark of that discipline. If your business needs frequent bridge financing due to a high DSO, it raises concerns about scalability and the overall health of your order-to-cash process.
Investors also see DSO as a growth indicator – is your company ready to scale? If you’re expanding to new markets, launching products or acquiring companies – can your billing system manage an increase in sales without a DSO spike?
Low, stable DSO tells them you're ready to scale. Consistently high DSO? That's a red flag.
But some investors might see high DSO as an opportunity too – improving DSO as part of a company’s value creation strategy. A company with a higher-than-average DSO might be attractive if the private equity firm believes it can implement processes or technologies to bring it down.
PE/VC firms scrutinize all these DSO trends. They’re looking for businesses that can grow without needing constant cash injections to stay afloat.
This makes optimizing the O2C process, particularly through automation, a critical move for companies preparing to scale.
The board's expectations for DSO.
For the board, DSO is an operational health check. They want consistency.
A stable and short DSO keeps cash flowing. It reflects efficient working capital management and less capital tied up in receivables, which can be reinvested into operations, paying down debt or funding new projects.
A sudden rise in DSO raises questions. Collections often take the spotlight, but the board may also ask:
- Are sales and billing processes in sync?
- How long are invoices sitting in your financial system before even reaching customers?
- Are there delays because billing teams spend time fixing errors or updating contracts manually?
- Are your CPQ, CRM and ERP communicating smoothly, or do data gaps extend the billing timeline?
Addressing the front end of DSO – getting invoices out accurately and on time – is as critical as optimizing collections.
“There is something implied but missing within the DSO metric. We cannot underestimate this additional component: Timely billing. With DSO, you get the invoice out, and the clock starts. But if that invoice was sitting there for two weeks or 30 days, DSO is missing half the story.” – Chad Wonderling, CFO at Zone
The board relies on the CFO to monitor DSO trends and offer solutions that maintain a full view of cash flow – from billing to cash collection. Strategic plans to reduce outstanding sales and improve cash flow fall under the CFO’s scope.
How the company views DSO.
DSO doesn’t just matter to finance – it touches nearly every part of the business. Each team has a role in keeping DSO low and cash flowing.
CFO and finance team
For the CFO, DSO is both a pulse check and a performance measure that reflects broader operational health. Rather than focusing only on collections, the CFO looks across the entire order-to-cash process, from the accuracy of invoicing to the timing of collections, to spot potential gaps that slow cash flow.
The finance team handles the day-to-day of DSO management. They need clear, efficient processes to keep things running smoothly – and billing automation tools play a key role here. Automation simplifies their workload, reduces manual errors, keeps invoices timely and supports clear tracking along the way. This clarity helps keep DSO low and prevent surprises at month- and year-end.
Together with the CFO, finance can identify areas where DSO might improve with strategic investments in technology or better data alignment across departments.
Sales, operations and support
For sales, DSO reflects customer experience and satisfaction. When DSO rises, it can signal issues like dissatisfaction, confusion or poor billing practices that create friction. Sales relies on finance to keep billing aligned with what’s promised. When both teams are in sync, they prevent disputes and make sure customers pay on time.
DSO also tells customer support how things are going. If payment delays stem from broken portals or limited payment options, support teams can report these issues and work with finance to address them. Smooth payment experiences contribute to positive customer relationships – keeping DSO under control.
Operations may look to DSO as a measure of overall process efficiency. Delivery issues, product quality or fulfillment delays can impact customer satisfaction and extend payment times. Their role? Ensure the products or services are delivered as promised – directly tying to prompt payments and lower DSO.
The full picture: DSO as a measure of alignment.
DSO is more than a cash flow metric. It's a mirror of the entire company’s alignment on delivering value to customers – on time, without friction.
When each team does its part, the result is predictable cash flow, stronger customer relationships and a foundation for sustainable growth.
For investors, DSO signals stability and readiness to scale. For the board, it’s a measure of operational control. And for the CFO, finance, sales, operations and support, it’s a guide to spot where improvements may be needed.
With stable DSO, your company gains a reputation for operational dependability and growth potential.
For an in-depth look at DSO, its limitations and the role of automation in optimizing your order-to-cash cycle, read the full DSO whitepaper for strategies that strengthen every part of your cash flow process.
