cashflow
DSO (Days Sales Outstanding)
Average days to collect cash from invoiced sales. The collections speed metric.
Definition
Days Sales Outstanding (DSO) measures how long, on average, it takes to collect cash from invoiced sales. Formula: (Accounts Receivable / Total Credit Sales) x days in period. Healthy DSO depends on payment terms - if you bill net 30, DSO under 35 is healthy; if you bill net 60, DSO under 70. Rising DSO signals collections problems before they become a cash crisis. Reducing DSO is a free working-capital improvement: every day you cut DSO releases cash.
In your business
- →Track DSO monthly - watch the trend, not just the level
- →If DSO is rising, audit collections process - usually slow follow-up or weak terms
- →Compare DSO to industry - some sectors run 90+ days normally, others 15-30