Calculate how quickly your company collects payments from customers
Average Accounts Receivable
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Days in Period
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Days Sales Outstanding (DSO)
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Days Sales Outstanding (DSO) is a financial metric that measures the average number of days it takes for a company to collect payment after a sale has been made. It's a key indicator of how efficiently a company manages its accounts receivable and cash flow.
DSO represents the average time between when a sale is made and when the payment is received. A lower DSO means the company collects payments more quickly.
DSO is used to gauge the effectiveness of a company's credit and collection policies. It helps identify potential issues with cash flow management.
"Good" DSO varies by industry. For example, retail businesses typically have very low DSO (since most sales are cash), while manufacturers may have higher DSO due to trade credit terms.
The standard formula for calculating Days Sales Outstanding is:
DSO = (Average Accounts Receivable / Total Credit Sales) × Number of Days in Period
For most accurate results, use credit sales rather than total sales if possible. If credit sales data isn't available, total sales can be used as a proxy, but this may slightly distort the DSO calculation.
DSO directly impacts your company's cash flow. The longer it takes to collect payments, the more working capital you need to cover expenses while waiting for customer payments.
A rising DSO may indicate that your credit policies are too lenient or that collections processes need improvement. It helps identify inefficiencies in your accounts receivable management.
Comparing your DSO to industry averages helps assess your competitive position. Companies with lower DSO often have an advantage in managing their working capital requirements.
A high or increasing DSO may signal potential bad debts or customers experiencing financial difficulties. It serves as an early warning system for credit risk.
Issue invoices immediately after delivery of goods/services. Ensure invoices are accurate, clear, and include all necessary payment details. Consider electronic invoicing for faster delivery.
Offer discounts for early payment (e.g., 2% 10, net 30). Implement late payment penalties. Consider requiring deposits or partial payments upfront for large orders.
Use automated payment reminders before and after due dates. Implement online payment options to make paying easier for customers. Consider recurring billing for regular customers.
Perform credit checks on new customers. Set appropriate credit limits based on risk assessment. Regularly review customer payment histories and adjust terms accordingly.
Contact customers before invoices are due to confirm receipt and answer questions. Escalate collection efforts systematically for overdue accounts. Build relationships with customer AP departments.
Monitor DSO trends monthly. Segment DSO by customer, product line, or salesperson to identify problem areas. Share results with relevant teams to drive accountability.
| Industry | Average DSO | Top Quartile |
|---|---|---|
| Retail | 7-15 days | ≤7 days |
| Manufacturing | 45-60 days | ≤40 days |
| Technology | 30-45 days | ≤30 days |
| Healthcare | 50-70 days | ≤50 days |
| Professional Services | 40-55 days | ≤35 days |
Note: Benchmarks vary by source and specific industry segment. Use for general comparison only.
DSO is most meaningful when tracked over time and compared against industry benchmarks. A single DSO calculation provides limited insight. For most accurate results, use credit sales rather than total sales if possible. This calculator is for informational purposes only and should not be considered financial advice.