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Days Sales Outstanding, DSO for short, is a key figure that indicates the average number of days it takes a company to collect its outstanding invoices. DSO is calculated by dividing the average accounts receivable balance by sales per day. The figure provides insight into the rate at which sales are converted into cash flows. A higher DSO means invoices are outstanding longer, while a lower DSO indicates faster collection. Interpretation depends on industry, payment terms and business model.
Within accounts receivable management, DSO is used as an indicator of the effectiveness of the collection process. A rising DSO can indicate deteriorating payment behavior or inefficient follow-up. The key figure is often reported to management as a measure of working capital management.
When a company has a DSO of 52 days, it takes an average of 52 days for invoices to be paid.
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