Days sales outstanding (DSO).
In plain English
Days sales outstanding divides accounts receivable by revenue and multiplies by the days in the period, measuring how long customers take to pay their invoices. A rising DSO means cash is arriving later, which strains payroll and supplier payments even while reported revenue looks fine. It can signal weaker customers, looser credit terms offered to win sales, or a billing process falling behind. Comparing DSO against the stated payment terms shows whether customers actually honor them. It is one leg of the cash conversion cycle.
01Why it matters
Every extra day of DSO is another day the business lends its own money to customers for free, and for a company running thin on cash that gap is the thing that bites first.
02The math, step by step
Say annual revenue is 3,650,000 dollars and accounts receivable average 400,000 dollars. DSO is 40 days (400,000 divided by 3,650,000, times 365). If the invoices say net 30, customers are running about ten days past terms on average.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
A high DSO is a timing problem, not automatically a collection loss. Customers may be slow and still good for the money. Amounts genuinely not expected to arrive are handled separately through the allowance for doubtful accounts.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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