Days Sales Outstanding (DSO)

Days Sales Outstanding (DSO) is a metric that measures the average number of days it takes a company to collect payment after a sale. A lower DSO indicates that a company is collecting its receivables quickly, while a higher DSO suggests delays in payment collection, which can negatively impact cash flow.

Example:

A company with a DSO of 30 takes, on average, 30 days to collect payment from its customers after a sale is made.

Key points

• DSO measures the average number of days it takes a company to collect payment after a sale.

• A lower DSO indicates efficient payment collection, while a higher DSO suggests delays.

• DSO is important for assessing a company’s cash flow and accounts receivable management.

Quick Answers to Curious Questions

What does a low DSO indicate?

A low DSO indicates that a company is collecting payments from customers quickly, which is positive for cash flow management.

How is DSO calculated?

DSO is calculated by dividing accounts receivable by total sales and then multiplying by the number of days in the period.

Why is DSO important for cash flow management?

Efficient collection of receivables improves cash flow and ensures that a company has the liquidity to meet its financial obligations.