Days Sales Outstanding Calculator
Calculate your DSO to measure how quickly you collect payments and convert sales to cash.
Current outstanding customer invoices
Annual credit sales (exclude cash sales)
Number of days (365 for annual, 90 for quarterly)
What is Days Sales Outstanding (DSO)?
DSO measures the average number of days it takes to collect payment after a credit sale. Formula: DSO = (Accounts Receivable / Total Credit Sales) * Number of Days. Example: $150K receivables / $1.2M annual sales * 365 = 45.6 days. Lower DSO is better - it means faster cash collection. DSO shows how efficiently you manage credit and collections, and how much capital is tied up in receivables.
What is a good DSO?
Good DSO depends on payment terms: Net 30 terms: DSO 30-35 is excellent, 35-45 good, 45+ needs improvement. Net 60 terms: DSO 45-60 good, 60-75 acceptable. Industry averages: SaaS/Software: 25-40 days, Manufacturing: 45-60 days, Wholesale: 30-45 days, Construction: 60-90 days. DSO should be close to your stated payment terms. Consistent or improving DSO is positive even if higher than ideal.
How is DSO different from accounts receivable turnover?
Both measure collection efficiency but differently: DSO = days to collect (lower is better). Formula: (AR / Credit Sales) * Days. AR Turnover = times collected per period (higher is better). Formula: Credit Sales / AR. They're inversely related: AR Turnover = Days / DSO. Example: 45-day DSO = 8.1* annual turnover (365/45). DSO is more intuitive (days), while turnover shows frequency.
How can I reduce DSO and collect faster?
Reduce DSO by: 1) Invoice immediately after delivery, 2) Offer early payment discounts (2% for payment within 10 days), 3) Accept multiple payment methods (ACH, credit card, online), 4) Send payment reminders before due date, 5) Follow up on overdue accounts quickly, 6) Improve credit screening to avoid slow payers, 7) Use automated invoicing/reminders, 8) Require deposits for large orders. Even 10-day DSO reduction frees significant cash.
Why does high DSO matter for cash flow?
High DSO hurts cash flow because: 1) Capital tied up: Money owed but not received can't pay expenses. 2) Opportunity cost: Can't invest or use that cash. 3) Bad debt risk: Longer outstanding increases default risk. 4) Financing costs: May need to borrow to cover cash gap. Example: $200K receivables at 60-day DSO vs 30-day = $100K extra cash trapped. Reducing DSO improves working capital and reduces reliance on credit lines.
What is the relationship between DSO and working capital?
DSO directly impacts working capital (Current Assets - Current Liabilities). Higher DSO = more cash trapped in receivables = less available working capital. Lower DSO = faster cash conversion = better liquidity. Example: Reducing DSO from 60 to 45 days on $1M monthly sales frees up $500K cash. This improves: Current ratio, cash flow, ability to pay suppliers and invest. Monitor DSO monthly as key working capital metric.