Days sales outstanding (DSO)
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is days sales outstanding (DSO)?
Days sales outstanding (DSO) is the average number of days a company takes to collect payment after a sale. DSO = accounts receivable ÷ credit sales for the period × days in the period, and a lower DSO means customers pay faster and less cash is tied up waiting.
How it works
Use credit sales only: including cash and counter sales, which never enter receivables, makes DSO look better than it is. The length of the period matters too whenever sales are rising or falling, so compare DSO measured the same way, and against the terms customers actually have.
Days sales outstanding (DSO) example
With $2.4 million in receivables and $1.8 million of credit sales in the last 30 days, DSO is 2.4 ÷ 1.8 × 30 = 40 days. Using the last 90 days instead, a busier stretch with $6.3 million of credit sales, gives 34 days.
Related terms
- Accounts receivable (AR)Accounts receivable (AR) is the money customers owe a company for goods already delivered and invoiced but not yet paid for.
- Net termsNet terms are payment terms that give a business customer a set number of days after the invoice date to pay the full amount, such as net 30 or net 60.
- Credit holdA credit hold is a block a distributor puts on a customer’s account, or on a single order, so that nothing ships until the credit department releases it.
