How this calculator works
Days sales outstanding turns the receivables balance into a waiting time. It compares what customers owe with the sales that created the invoices, then converts the fraction into days. A rising DSO is often the first sign of a collection problem: customers are paying slower, credit standards have slipped, or a few large accounts are overdue. A very low DSO can mean the business collects quickly, or that it sells mostly for cash. Accountants call the reciprocal of this measure receivables turnover, and the two convey the same information in different units.
Formula
Days sales outstanding = average accounts receivable / total sales × days in the accounting period. Average receivables = (opening + closing receivables) / 2. Rearranged, receivables = DSO × sales / period and sales = receivables × period / DSO.
Worked example
Average receivables of $150,000 against $1,000,000 of sales over 365 days gives 150,000 / 1,000,000 × 365 = 54.75 days. Reducing the average balance to $120,000 would bring the collection period down to 43.8 days.
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Frequently asked questions
What is a good DSO?
It should be close to your stated credit terms. If you invoice on 30 day terms and DSO is 55 days, customers are paying well beyond the agreement. Compare with your own history and with peers before concluding that credit control is weak.
Should DSO use total sales or credit sales?
Credit sales is the purist choice because cash sales never create receivables. Most companies report only total sales, so total sales is the common substitute. When cash sales are a large share, using total sales understates the true collection period.
How does DSO affect cash flow?
Each day of DSO is roughly one day of sales tied up in receivables. For $1,000,000 of annual sales, one day is about $2,740 of cash. Cutting DSO from 55 to 45 days frees roughly $27,000.