Days Sales Outstanding

What is days sales outstanding?

Days sales outstanding (DSO) measures how quickly you turn invoices into cash. A DSO of 45 means that, on average, clients take 45 days to pay. The lower your DSO, the faster money reaches your bank and the healthier your cash flow.

How to calculate DSO

The standard formula is: DSO = (accounts receivable / total credit sales) x number of days in the period.

For example, if you have $12,000 in unpaid invoices and billed $30,000 over the last 90 days, your DSO is (12,000 / 30,000) x 90 = 36 days.

How to lower your DSO

Common ways to get paid faster include:

• Invoice promptly: Send the invoice the day the work is done
• Shorter terms: Move from Net 30 to Net 15 or due on receipt where clients accept it
• Easy payment options: Offer card and online payment methods
• Consistent follow-up: Send a payment reminder before and after the due date
• Deposits: Collect a deposit upfront on larger jobs

Compare your DSO with your payment terms. If your terms are 15 days and your DSO is 40, clients are routinely paying late.