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DSO: days sales outstanding, formula and example

DSO (Days Sales Outstanding) shows how many days, on average, it takes a company to collect revenue from credit sales. The metric directly affects OCF and CCC and reflects the quality of payment terms, billing, and collections.

What the metric measures

How quickly credit revenue is converted into cash. Analyze DSO together with the aging report and the share of overdue receivables to see bottlenecks in the collection process.

Calculation

  • DSO = (Average receivables / Credit revenue) × Number of days in the period
  • Estimate (month): DSO ≈ ARaverage / (Credit salesmonth / 30)
  • BPDSO: Current (not overdue) receivables / Credit sales × Days

Calculate from net revenue excluding VAT, account for returns/credit notes, and include only credit sales.

Calculation example

Average receivables for the month are 1,500,000 and monthly revenue including VAT (30 days) is 1,800,000. DSO = 1,500,000 / 1,800,000 × 30 = 25 days. If contract terms are 14 days, customers on average pay late.

Data sources

ERP/1C (AR registers), CRM/billing, bank statements, collection modules; payment terms reference data, aging reports, and allowances for doubtful debts.

Interpretation

  • High DSO: lenient terms, billing errors, disputes, debt concentration
  • Low DSO: good discipline/prepayment — check the impact of discounts/penalty terms
  • Cash effect: reducing DSO improves OCF and CCC

Useful breakdowns

  • Customers/groups, managers, regions, channels
  • Payment terms (Net 7/14/30/45…), currencies
  • Aging buckets: 0–30 / 31–60 / 61–90 / 90+
  • Reasons for delinquency: dispute, partial payment, documents

Dashboard visualizations

  • DSO trend vs targets
  • Stacked bar of aging buckets
  • Top 20 debtors by amount/days
  • Scatter: amount vs days overdue
  • “Invoice → payment” funnel, promise-to-pay calendar

How to set targets

Set a target DSO by segment, credit limits, an invoicing SLA, and a dunning process; use early payment incentives, factoring/insurance, and billing accuracy controls.

Common mistakes

  • Using revenue including VAT or including cash/prepaid sales
  • Calculating from ending AR instead of the average
  • Ignoring credit notes/returns and currency normalization
  • Mixing trade and other receivables
  • Not accounting for factoring/assignment of debt

Questions for discussion

  • Who accounts for the largest overdue amounts, and why?
  • What actions will reduce DSO by 5–10 days within the next 30 days?
  • What is the effect of −5 days of DSO on OCF and working capital financing needs?

Questions and answers

What is DSO?

Days Sales Outstanding — the average number of days between a sale and receiving payment from the customer.

How do you calculate DSO?

DSO = average accounts receivable / revenue for the period × number of days in the period. Use revenue including VAT if receivables include VAT.

How do you reduce DSO?

Check customer creditworthiness, invoice on time, send reminders before the due date, offer prepayment discounts and limit shipments to debtors.