Example
$18,000 owed on $60,000 of sales over 90 days gives a DSO of 27 days.
Also called DSO, average collection period, or debtor days.
What it means in practice
DSO is your accounts receivable divided by the sales in a period, multiplied by the days in that period. As one number it says how long your money sits with clients before it reaches you.
Compare it to the terms you actually set. If you invoice on net 30 and your DSO is 47, the problem is not the terms; it is that nobody follows up on day 31.
Covered in full in the guide to chasing an unpaid invoice.
Where it shows up on the paperwork
DSO is a figure you calculate rather than a document you send. What produces it is the gap between the invoice date and the payment date on every invoice in the period.
What goes wrong
- Comparing your DSO to a national average rather than to your own terms. Only the second one tells you anything you can act on.
- Measuring it once. The number matters as a trend across months.
- Letting one enormous late invoice hide the fact that everything else is paid on time, or the reverse.
Common questions
What does days sales outstanding mean?
The days sales outstanding meaning is the average number of days it takes you to collect after invoicing. A rising figure means the money is arriving later even when sales look flat.
How do I calculate DSO?
Divide what you are owed by the sales in the period, then multiply by the number of days in that period. $18,000 owed on $60,000 of sales over 90 days gives a DSO of 27 days.
What is a good DSO?
One close to the terms you actually set. Net 30 terms with a DSO in the low thirties means your process works. Net 30 terms and a DSO of 50 means nobody is following up.