Days Sales Outstanding (DSO)
Short answer
Days Sales Outstanding (DSO) measures the average number of days it takes to collect cash after invoicing. It is the single best diagnostic for whether a growing business is converting revenue into actual cash — or just papering the AR aging report.
Worth quotingEach 10 days of DSO improvement frees roughly 2.7% of annual revenue in working capital (10 ÷ 365). For a $5M-revenue business, cutting DSO from 70 to 40 days unlocks ~$410k of cash that was previously tied up in receivables.
Formula
DSO = (Accounts Receivable / Revenue) × 365
Take your accounts receivable, divide by annual revenue, multiply by 365.
Why it matters
Long DSO means cash is tied up in customer invoices. Each extra day of DSO is real money you're financing for free. Companies with strong DSO discipline win on cash flow even with the same revenue.
Benchmarks
People also ask
Common questions about Days Sales Outstanding (DSO)
What is Days Sales Outstanding (DSO)?+
DSO is the average number of days it takes for customers to pay you after you send an invoice.
How is Days Sales Outstanding (DSO) calculated?+
Take your accounts receivable, divide by annual revenue, multiply by 365.
What is a good Days Sales Outstanding (DSO)?+
A healthy days sales outstanding (dso) is typically around < 15 days — excellent (cash businesses). Specific targets vary by industry and stage; check our benchmarks above for your sector.
Why does Days Sales Outstanding (DSO) matter?+
Long DSO means cash is tied up in customer invoices. Each extra day of DSO is real money you're financing for free.
See your business's days sales outstanding (dso).
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