Glossary
What is days sales outstanding?
Days sales outstanding (DSO) is the average number of days it takes to collect payment after a sale. See the formula, a worked example and how to lower it.
Updated · By PayToMe Editorial
Days sales outstanding, often shortened to DSO, is the average number of days it takes a business to collect payment after making a sale on credit. A lower number means customers pay faster and cash returns to you sooner.
How it works
The standard formula is:
DSO = (accounts receivable / credit sales) x number of days in the period
Accounts receivable is the total of unpaid invoices at the end of the period. Credit sales are the sales you invoiced during the period. Multiplying by the days in the period (30 for a month, 90 for a quarter, 365 for a year) turns the ratio into days.
DSO is a snapshot, so compare it over time rather than judging one month alone. If it keeps rising, customers are paying more slowly, or you have a few large unpaid invoices. An aging report tells you which invoices are driving the number.
DSO is also shaped by your terms. If your terms are net 30, a DSO of 30 means customers pay right on time. A DSO of 45 means they pay about two weeks late on average.
Example
A consulting firm wants to calculate DSO for the quarter.
How to lower DSO
- Send invoices the day the work is done. Delays in invoicing add directly to DSO.
- Choose shorter terms or due on receipt for small jobs.
- Ask for a deposit on large projects.
- Add a payment link so customers can pay in seconds.
- Send reminders before and after the due date.
The due date calculator helps you set due dates consistently, and the free invoice generator gets invoices out fast. PayToMe is in public beta and you can sign in to PayToMe to send invoices today. Smart reminders are in development.
Related terms
- Accounts receivable: the balance DSO is based on.
- Aging report: shows which invoices are late.
- Net 30: a common payment term to compare against.
- Cash flow: the money movement DSO affects.