ACCOUNTS RECEIVABLE

    Days Sales Outstanding (DSO)

    DEFINITION

    Days Sales Outstanding (DSO) is the average number of days a business takes to collect payment after a sale on credit. It is calculated as (Accounts Receivable ÷ Total Credit Sales) × Number of Days. A lower DSO means faster cash collection and healthier working capital.

    DSO formula

    The standard formula is:

    DSO = (Accounts Receivable / Total Credit Sales) × Number of Days

    Example: With $90,000 in AR, $300,000 in quarterly credit sales, and a 90-day period, DSO = (90,000 / 300,000) × 90 = 27 days.

    Why DSO matters

    DSO is one of the clearest indicators of accounts receivable health. A rising DSO signals slower collections, weakening cash flow, and growing risk of bad debt. A stable or falling DSO confirms your billing, reminders, and credit policies are working.

    Benchmarks by industry

    • SaaS / subscriptions: 25–45 days
    • Professional services & agencies: 30–60 days
    • Construction: 60–90+ days
    • Manufacturing: 45–75 days

    Compare against peers, not absolutes — a "good" DSO depends on your standard payment terms.

    How to lower DSO

    1. Send invoices the day work is delivered.
    2. Automate reminder schedules at -7, 0, +3, +7, +14 days.
    3. Offer online payment by card or ACH.
    4. Charge a late fee on overdue invoices.
    5. Run a weekly AR aging review.

    Frequently asked questions

    Related

    AR Aging ReportAccounts ReceivableDunningReminder Schedule Builder

    More in Accounts Receivable

    Accounts Receivable Aging Report

    An accounts receivable (AR) aging report is a financial document that groups unpaid customer invoices by how long they have been outstanding — typically Current, 1–30, 31–60, 61–90, and 90+ days. It is the primary tool for spotting collection risk and prioritizing follow-up.

    Dunning

    Dunning is the structured process of communicating with customers to collect overdue invoices. It typically combines automated email reminders, phone calls, and escalation letters at fixed intervals (e.g., 3, 7, 14, and 30 days past due) before referring the debt to collections.

    Accounts Receivable

    Accounts Receivable (AR) is the total money a business is owed by customers for goods or services delivered on credit but not yet paid. It appears as a current asset on the balance sheet and is one of the most important indicators of short-term cash flow health.

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