Definition
What is days sales outstanding (DSO)?
Days sales outstanding (DSO) is the average number of days it takes a business to collect payment after making a credit sale. It is calculated by dividing accounts receivable by total credit sales and multiplying by the number of days in the period. A lower DSO means the business collects cash faster, which supports healthier cash flow.
Formula
DSO = (Accounts receivable / Total credit sales) x Number of days in the period
How to calculate DSO
DSO takes your outstanding receivables, divides them by the credit sales made in a period, and scales the result by the length of that period in days.
For example, if accounts receivable are 60,000, total credit sales for the period are 180,000, and the period is 90 days, then DSO is 60,000 divided by 180,000, which is 0.333, multiplied by 90, giving a DSO of 30 days. On average, it takes 30 days to collect.
What a good DSO looks like
There is no universal benchmark, because payment terms differ by industry and client. The useful comparison is DSO against your own payment terms and against your own trend over time. If your terms are net 30 but DSO is 55, invoices are being paid far later than agreed. A rising DSO signals that collection is slowing, which pressures cash flow even when sales are strong.
How to lower DSO
Common ways to reduce DSO include invoicing promptly and accurately, setting clear payment terms, following up on overdue invoices early using an aging report, and making it easy for clients to pay. The faster invoices go out and the sooner overdue balances are chased, the quicker cash comes in.
How this works in Belvak
Belvak keeps invoices and payments together, so you can see what has been billed against what has been collected and which invoices are overdue. Getting invoices out on time and following up on overdue balances early are the practical levers behind a lower DSO.
FAQ
Frequently asked questions
How do you calculate days sales outstanding?
Divide accounts receivable by total credit sales for the period, then multiply by the number of days in that period. If receivables are 60,000, credit sales are 180,000, and the period is 90 days, DSO is 30 days.
What is a good DSO?
There is no universal target. Compare DSO against your own payment terms and your own trend. If terms are net 30 but DSO is well above 30, invoices are being paid later than agreed, and a rising DSO signals slowing collection.
How can a business reduce its DSO?
Invoice promptly and accurately, set clear payment terms, follow up on overdue invoices early using an aging report, and make paying easy. Faster invoicing and earlier follow-up bring cash in sooner.