What is days sales outstanding?
Days sales outstanding (DSO) is the average number of days it takes a business to collect payment after invoicing, commonly calculated as accounts receivable divided by credit sales for a period, multiplied by the days in that period.
DSO turns a vague feeling that clients pay slowly into a number you can track. If a firm has $150,000 in receivables and billed $300,000 over the last 90 days, its DSO is roughly 45 days, using illustrative figures. Watching the trend month to month matters more than any single reading, and comparing against your own payment terms tells you whether clients are honoring them.
High DSO usually has ordinary causes: invoices sent late, invoices with errors that clients dispute, no consistent reminder schedule, or payment options that are inconvenient. Each one has a practical fix. Bill promptly when work is complete, check invoices before they go out, send polite scheduled reminders, and offer online payment through the accounting system.
Automating reminders is often the first step, since most accounting tools, such as QuickBooks Online and Xero, include reminder features that many firms never turn on. Escalation to a phone call or a partner conversation should stay with a person. Track DSO alongside the share of receivables over 60 days, since a few large overdue invoices can hide behind a reasonable average.
Example
For example, a 15-person IT consulting firm finds that invoices go out an average of nine days after month end because a partner reviews each one by hand. It moves to a review checklist handled by the office manager, enables automatic reminders at 7 and 21 days past due, and tracks DSO monthly against its previous baseline.