How do you calculate DSO?

DSO = (accounts receivable ÷ credit sales) × days in the period. With $30,000 owed at the end of a quarter and $60,000 of credit sales in that quarter, DSO is 30,000 ÷ 60,000 × 90 = 45 days.

What is a good DSO for a small business?

One close to your payment terms. On net 30, a DSO near 30 means customers pay roughly on time; a DSO of 50 means the average invoice is about three weeks late. Watch the trend as much as the number.

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What is DSO (days sales outstanding)?

One number for how long your customers take to pay you. Useful, as long as you read it next to your payment terms.

CollectlySeptember 30, 20264 min read

DSO, days sales outstanding, is the average number of days between making a sale on credit and getting paid for it. If your DSO is 45, the money from a typical invoice reaches your bank about a month and a half after you sent it.

How to calculate DSO

DSO = (accounts receivable ÷ credit sales) × days in the period

Use the same period for every part. If you had $30,000 outstanding at the end of a quarter and made $60,000 of credit sales over that quarter, your DSO is 30,000 ÷ 60,000 × 90 = 45 days.

Leave out sales that were paid on the spot, by card or cash. They were never owed to you, and counting them makes the number look better than your collections really are.

What is a good DSO?

Compare it with your payment terms, not with someone else's number. If you invoice on net 30, a DSO close to 30 means customers pay roughly on time. A DSO of 50 on net 30 terms means the average invoice is about three weeks late. Your terms set a floor: on net 30 you will not get much below a month, however good your follow-up is.

Watch the trend more than the number. A DSO that climbs from 35 to 48 over two quarters tells you something changed, a big customer slowing down or reminders slipping, long before it shows up as a cash problem.

What brings DSO down

Send invoices the day the work is done, to the person who actually pays them.
Check before the due date that the invoice has what their system needs, such as a PO number.
Follow up on day one, and ask for a payment date rather than repeating the request.
Read the replies. An invoice stuck behind a dispute or a missing detail will not move however many reminders it gets.

Common questions

How do you calculate DSO?: DSO = (accounts receivable ÷ credit sales) × days in the period. With $30,000 owed at the end of a quarter and $60,000 of credit sales in that quarter, DSO is 30,000 ÷ 60,000 × 90 = 45 days.
What is a good DSO for a small business?: One close to your payment terms. On net 30, a DSO near 30 means customers pay roughly on time; a DSO of 50 means the average invoice is about three weeks late. Watch the trend as much as the number.