DSO (Days Sales Outstanding) is the average number of days between the issuance of an invoice and its payment. It is calculated as follows: DSO = (accounts receivable ÷ total revenue for the period, including tax) × number of days in the period.
Example
Over a 90-day quarter, a company bills €900,000, including tax. It still has €300,000 in invoices to collect. Its DSO is (300,000 ÷ 900,000) × 90 = 30 days.
Why It’s Important
The higher the DSO, the more money remains tied up with customers instead of in your cash flow. Reducing DSO by a few days frees up cash without having to borrow. It is the metric most closely monitored by CFOs and credit managers.
Further reading: How to calculate and reduce your DSO, and the 7 strategies for reducing DSO. Free template: Excel kit for aging accounts receivable and DSO calculation.
See also: Target DSO, Customer DSO, Accounts Receivable, Aging Report.
