Days Sales Outstanding (DSO)
Average number of days to collect receivables. Computed as average accounts receivable divided by daily sales (annual sales / 365).
When to use: Use to measure how quickly customers pay. Rising DSO over time can signal credit-quality deterioration, demand softness (offering longer credit terms to close sales), or collection-process breakdown. Compare to industry norms.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| DSO | Days Sales Outstanding | Average days to collect receivables | integer |
| Receivables | Accounts Receivable | Average accounts receivable balance | $ |
| Sales | Annual Sales | Annual revenue (net sales) | $ |
Real-Life Examples
Example 1: B2B Software Firm
Average receivables $40M, annual sales $300M.
Given
Step-by-Step
DSO of ~49 days — typical for B2B software with net-30 to net-60 terms. Watch the trend: rising DSO often precedes earnings warnings.
Frequently Asked Questions
Industry-dependent. Cash businesses (groceries, fast food) run near 0; B2B services 30–60 days; project-based services can run 90+. The trend matters more than the level — improving DSO is a sign of operational discipline; deteriorating DSO is a yellow flag.
Either works in practice. 365 is the actual calendar year (this calculator); some textbooks use 360 (the banker's year, descending from money-market conventions). The difference is ~1.4% in the answer — not material for decision-making.