Days Sales Outstanding (DSO)
The average number of days a company takes to collect payment after recording a sale.
What is DSO?
Days Sales Outstanding (DSO) measures the average number of days between when a sale is recorded and when the cash is received from the customer. It is calculated as: DSO = (Accounts Receivable / Revenue) × Number of Days. A low DSO indicates efficient collections and strong cash conversion; a high DSO suggests slow collections that tie up working capital. DSO is highly industry-dependent — subscription businesses collecting upfront may have near-zero DSO, while government contractors often have 90+ day DSOs. Trends matter: rising DSO can signal deteriorating credit quality among customers, aggressive revenue recognition, or collection problems. DSO is one component of the cash conversion cycle alongside days inventory outstanding (DIO) and days payable outstanding (DPO).
Example
A company has $150 million in accounts receivable and quarterly revenue of $450 million (91 days). DSO = ($150M / $450M) × 91 = 30.3 days. This means the company collects the average sale in about 30 days. If this DSO rises to 45 days the following quarter, an analyst would investigate: Has the company extended payment terms to win business? Are certain customers paying more slowly? Is revenue being recognized before cash is collectible?