Cash & working capital
Days sales outstanding (DSO)
Days sales outstanding is the average number of days it takes a company to collect payment after a sale on credit.
DSO = (Accounts receivable ÷ Revenue for the period) × Days in the period
Worked example
| Accounts receivable at quarter end | $200,000 |
| Revenue for the quarter | $450,000 |
| Days in the quarter | 90 |
($200,000 ÷ $450,000) × 90 = 40 days
Why it matters
Every day of DSO is cash the business has earned but cannot spend. A rising DSO is often the first sign of a collections problem or a customer in trouble, long before it shows in the P&L.
Common mistakes
Where it misleads
Using total revenue when a large share is paid up front or by card, which makes DSO look better than credit collections really are.
Comparing a quarter-end DSO with a monthly one without adjusting the number of days.
Reading one number instead of the trend: a single month can swing on one large invoice.
Related terms
Keep reading
- Accounts receivable aging (AR aging)An accounts receivable aging report groups unpaid customer invoices by how long they are past due, so you can see which money is at risk of never arriving.
- Days payable outstanding (DPO)Days payable outstanding is the average number of days a company takes to pay its suppliers after receiving their bills.
- Cash burn and runwayNet burn is how much more cash a business spends than it takes in each month; runway is how many months its cash would last at that rate.
Stop calculating it by hand.
Dear CFO keeps your statements, forecasts and metrics current from the systems you already run.