Days of sales outstanding (DSO) is the average amount of days it takes for a company to collect payments for their services.
What is day of sales outstanding?
Often, businesses will issue invoices to charge customers for their services, but sending invoices doesn’t mean that payments have been collected. Instead, invoiced charges are considered accounts receivable. The time it takes to collect accounts receivable is important to consider as it represents how quickly companies can earn cash from their operating activities. The rate at which companies can confirm payment for their services also provides insight on their customers’ credit.
DSO is calculated by taking the company’s accounts receivable, dividing it by the total credit sales, and then multiplying it with the number of days in the period.