Days Sales Outstanding (DSO)
Average number of days to collect payment after a sale, measuring debtor management efficiency
What is Days Sales Outstanding (DSO)?
Days sales outstanding is the average number of days it takes to collect payment after a sale on credit. It shows how quickly customers pay.
Slow collection ties up cash and raises the risk of bad debt, so DSO is a core measure of credit and collections performance.
How this KPI is measured
- Function
- Finance
- Sub-function
- Cash Flow Management
- Industry
- All Industries
- Type
- Lagging
- Impact
- Financial control
- Unit
- days
- Measurement frequency
- Monthly / Quarterly
- Formula
- (Accounts receivable / Total credit sales) × Number of days in period
How to calculate it
Divide accounts receivable by total credit sales, and multiply by the number of days in the period.
For example, if receivables are 4,000,000 and annual credit sales are 32,000,000, DSO is (4,000,000 / 32,000,000) x 365 = about 46 days.
Compare with payment terms. If terms are 30 days and DSO is 46, customers are paying late on average.
Where it is used
Managing cash flow
Speed up collection.
Judging credit control
See how well collections work.
Forecasting cash
Estimate receipts.
How to improve it
Tips and common mistakes
- Seasonal sales swings can distort DSO. Also use collections effectiveness.
- Compare with your own terms.
- Track by customer segment.
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