Days Sales Outstanding

Days Sales Outstanding

A financial metric that measures the average number of days a company takes to collect payment after a sale is made, indicating the effectiveness of credit and collection policies.

For example, a company with quarterly sales of $9 million ($100,000 daily) and accounts receivable of $4.5 million would have a DSO of 45 days ($4.5 million ÷ $100,000), meaning it takes an average of 45 days to collect payment after making a sale.

Also called average collection period, DSO directly impacts cash flow and working capital requirements. Higher values indicate longer collection times, potentially signaling credit policy issues, collection inefficiencies, or customer financial problems. Calculating DSO using average accounts receivable over the period provides more stable results than using ending balances. Industry norms vary widely based on typical payment terms and practices, making peer comparisons more meaningful than absolute values when evaluating performance.