Days Sales Outstanding (DSO)
Days Sales Outstanding (DSO) is a financial metric used to measure the average number of days it takes a company to collect cash from its customers after a sale is made on credit. In simpler terms, it tells you how long, on average, it takes for your company to convert credit sales into actual cash.
What is Days Sales Outstanding (DSO)?
Days sales outstanding (DSO) measures the average number of days it takes a company to collect payment after a sale. It’s calculated by dividing accounts receivable by total credit sales and multiplying by the number of days in the period. A lower DSO indicates that a company is collecting receivables quickly, which improves cash flow.
Monitoring DSO helps businesses understand the efficiency of their credit and collection processes. High DSO may indicate issues with customer creditworthiness or inefficiencies in the collections process. By improving DSO, companies can enhance liquidity, reduce the risk of bad debts and ensure a steady cash flow to support operations.
