What is Days sales outstanding (DSO)? Definition, Formula & Benchmarks

What is days sales outstanding (dso)?

Days sales outstanding is the average number of days it takes to collect cash after you invoice a customer. It turns your accounts receivable into a time figure, showing how quickly sales convert to cash. Lower DSO means faster collections and healthier cash flow; rising DSO signals collection or credit problems.

Formula

DSO = (Accounts Receivable ÷ Total Credit Sales) × Number of Days in Period

Accounts ReceivableTotal unpaid customer invoices at the end of the period
Total Credit SalesSales made on credit during the period
Number of Days in PeriodDays in the period being measured (e.g., 30, 90, or 365)

Worked example

With $150,000 in receivables and $600,000 in quarterly credit sales, DSO is about 23 days ((150,000 ÷ 600,000) × 90).

Why it matters for fast-growing companies

DSO is a direct read on how long your cash sits in customers' hands instead of your bank account. Rising DSO ties up working capital and can force you to raise money you wouldn't otherwise need. Founders should track it monthly and tighten invoicing terms, dunning, and credit checks when it creeps up.

Frequently asked questions

What is a good DSO for a SaaS company?+

It depends on your billing model, so compare against your own terms rather than a universal target. If you invoice net-30, a DSO near 30 is expected; annual upfront billing can push it lower. The useful signal is the trend: a DSO climbing well past your stated payment terms points to collection trouble.

How is DSO different from payment terms?+

Payment terms are the deadline you set (say net-30); DSO is how long customers actually take to pay on average. If your terms are 30 days but DSO is 50, customers are routinely paying late, and that gap is exactly what you want to close to protect cash flow.

Days sales outstanding (DSO)