Skip to main content

Days Sales Outstanding (DSO)

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.

Related terms

30-Day and 13-Week Operating Cash Burn
30-day and 13-week operating cash burn are also known as the “burn rate.” These are the rates at which a business consumes its cash reserves when it isn’t bringing in profit. 
Accounts Payable Days
Accounts Payable Days (AP Days), also referred to as Days Payable Outstanding (DPO), is a financial ratio that measures the average time a company takes to pay its suppliers or vendors for credit purchases.
Accounts Payable Turnover
Accounts payable turnover explains how many times a business pays its creditors in a set timespan. Companies can use this metric to measure their short-term liquidity.
Accounts Receivable Turnover
The accounts receivable turnover ratio (or debtor turnover ratio) allows businesses to evaluate their debt collection efficiency.
Advanced Reporting
Advanced reporting refers to a sophisticated approach to generating and analyzing reports using advanced tools, techniques, and technologies.
Annual Recurring Revenue (ARR)
Annual Recurring Revenue (ARR) is a key metric used by subscription-based businesses to track and measure their predictable, recurring revenue streams over a one-year period.