Definition
Days sales outstanding (DSO) measures the average number of days it takes a business to collect payment after a sale is invoiced. It is calculated as accounts receivable divided by credit sales, multiplied by the number of days in the period. A lower DSO means faster collection and healthier cash flow.
Also called: DSO, Average collection period
Days sales outstanding in practice
If your terms are Net 30 and your DSO is 45, clients are paying 15 days late on average. Shortening terms, invoicing promptly, and systematic reminders all reduce DSO.
Example
A studio has $20,000 in receivables and $60,000 in credit sales over a 90-day quarter. DSO is 20,000 / 60,000 x 90 = 30 days.
Frequently Asked Questions
What is a good DSO?
Close to your stated payment terms. If you offer Net 30, a DSO of 30 to 35 is healthy. Significantly higher numbers point to collection problems or terms that are too generous.