Days sales outstanding

The average number of days it takes to collect payment after a credit sale.

DefinitionThe average number of days it takes to collect payment after a credit sale.

Days sales outstanding, or DSO, measures how long customers take to pay. It converts the accounts receivable balance into days of credit sales, so a rising DSO means cash is sitting with customers longer, even when revenue looks healthy.

How it is computed

DSO = accounts receivable / credit sales for the period × days in the period. Use credit sales only, and the same period for both figures.

Example

Accounts receivable of $600,000 at quarter end and credit sales of $1,800,000 over the 90-day quarter give a DSO of $600,000 / $1,800,000 × 90 = 30 days. With 30-day terms, customers are paying on time on average.

Where it goes wrong

Seasonality: a big sales month at period end raises receivables and DSO without any change in how customers pay. An average also hides a few large accounts that are badly overdue, so read it with an aging report. The full guide is days sales outstanding.

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