Days Sales Outstanding (DSO)
Days sales outstanding (DSO) is the average number of days a business takes to collect payment after a credit sale, calculated as accounts receivable divided by credit sales, multiplied by the number of days in the period.
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Formula
DSO = (Accounts receivable ÷ Credit sales) × Number of days in the period
Example: Accounts receivable at quarter end is $240,000 and credit sales for the quarter were $720,000. DSO = ($240,000 ÷ $720,000) × 90 = 30 days.
DSO equals accounts receivable divided by credit sales, multiplied by the days in the period. A business with $240,000 of receivables and $720,000 of credit sales in a 90-day quarter has a DSO of 30 days, so customers take about a month to pay on average.
Definition
DSO measures how quickly customers turn invoices into cash. A lower DSO means customers pay faster; a rising DSO means more cash is tied up in receivables. Use credit sales rather than total sales, because cash sales are collected immediately and would make DSO look better than it is. DSO is one part of the cash conversion cycle, alongside days payable outstanding and days inventory outstanding, and is most useful when compared with your own payment terms and tracked month to month.
Why It Matters
Every day of DSO is a day of sales your business has earned but cannot spend. When DSO creeps above your payment terms, customers are paying late, and the gap has to be funded from cash reserves or borrowing. Tracking DSO monthly shows a collections problem before it shows up as a cash shortfall.
Examples
Monthly DSO
Accounts receivable at the end of a 30-day month is $85,000 and credit sales for the month were $102,000. DSO = ($85,000 ÷ $102,000) × 30 = 25 days.
Comparing DSO with terms
A business that invoices on Net 30 terms has a DSO of 47 days on $1.2 million of annual credit sales. Customers are paying about 17 days late on average, which ties up roughly $55,900 of cash ($1,200,000 ÷ 365 × 17).
How Aequo AP Helps
Aequo Collect, now in early access with a waitlist, syncs customers, invoices and payments from QuickBooks Online, grades each customer from A to F based on how they have paid, predicts when each open invoice will be paid, and shows DSO on its dashboard. Reminder emails are built from templates and sent by you. For a quick estimate today, the free AR aging calculator works out DSO from your receivables by aging bucket and your annual revenue.
Start Free TrialFrequently Asked Questions
How do you calculate days sales outstanding?
Divide accounts receivable at the end of the period by credit sales for the same period, then multiply by the number of days in the period: 30 for a month, 90 for a quarter, 365 for a year.
What is a good DSO?
There is no single good number; it depends on your industry and the terms you offer. A practical test is to compare DSO with your standard payment terms. On Net 30 terms, a DSO close to 30 means customers pay on time, and a DSO well above it means they are paying late.
Should DSO use total sales or credit sales?
Credit sales. Cash sales are collected immediately, so including them lowers DSO and hides slow-paying customers. If you cannot split them out, use total sales consistently and note it.
Should I use ending or average accounts receivable?
Either works if you use the same method every period. Ending receivables reacts faster to recent changes; the average of opening and closing receivables smooths out a large invoice raised at month end.
What is the difference between DSO and DPO?
DSO measures how long customers take to pay you. DPO (days payable outstanding) measures how long you take to pay suppliers. If DSO is higher than DPO, you are paying suppliers before customers pay you and funding the gap yourself.
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Deep Dive Guides
DSO Calculator
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AR Aging
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Aequo Collect
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