Days sales outstanding (DSO)
How DSO is calculated
The usual formula is your accounts receivable divided by total credit sales for a period, multiplied by the number of days in that period. The exact figure matters less than the trend: is it moving up or down, and how far does it sit above your agreed terms?
Why it matters for distributors
A distributor has already paid for the stock it sold. Every extra day of DSO is a day that cash sits in another account instead of funding your next purchase. On thin margins, shaving days off DSO can free up more working capital than chasing a small margin gain elsewhere.
How to bring it down
Invoice accurately and on time, make the terms unambiguous before the sale, and above all chase consistently. Reminders that arrive on schedule, in a human tone, get invoices paid sooner than a nervous, occasional chase. Doing that reliably by hand is hard, which is why it is a natural thing to automate.
Frequently asked questions
What is days sales outstanding?
DSO is the average number of days between making a sale on credit and collecting the payment. It shows how long your cash is tied up in unpaid invoices.
How is DSO calculated?
A common formula is accounts receivable divided by total credit sales, multiplied by the number of days in the period. For example, receivables divided by sales, times ninety for a quarter.
What is a good DSO?
It varies by sector and by your payment terms, so the meaningful comparison is against your own terms and your own trend. If your terms are thirty days and your DSO is well above that, there is cash to release.
How do you reduce DSO?
Invoice promptly and accurately, agree terms clearly up front, and chase consistently and politely rather than sporadically. Consistent, early reminders move DSO more reliably than occasional aggressive chasing.
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