What is DSO (Days Sales Outstanding)?
The average number of days it takes a company to collect payment after making a sale on credit.
Definition
Days sales outstanding measures how quickly a company converts its credit sales into cash by expressing average accounts receivable relative to sales over a period. A lower DSO means customers pay faster and cash is freed up, while a rising DSO can signal collection problems, looser credit terms, or customer financial stress. It is a core working-capital metric, watched alongside days payable outstanding and days inventory outstanding to assess the cash conversion cycle. DSO is most meaningful when compared to a company's payment terms and tracked as a trend.
How DSO Works in ERP
An ERP calculates DSO automatically from live AR and sales data, often displaying it on finance dashboards and trending it over time and by customer segment. Because the receivables and invoicing data are integrated, the metric updates continuously rather than waiting for a manual report. Drill-down lets finance see which customers or invoices are driving a change, and it links directly to dunning and collections workflows.
ERP Vendors with Strong DSO
Frequently Asked Questions
How is DSO calculated?
A common formula is average accounts receivable divided by total credit sales for a period, multiplied by the number of days in that period. For example, with $1,000,000 in receivables, $6,000,000 of credit sales over 90 days, DSO is roughly 15 days. The exact method varies, and some companies use a countback approach for accuracy. ERPs compute it automatically from the underlying AR and sales figures.
What is a good DSO?
There is no universal target because it depends heavily on the payment terms a company offers and its industry norms. The most useful benchmark is the company's own terms: a DSO well above the stated terms suggests collection issues, while one close to terms indicates healthy collections. Tracking the trend over time matters more than any single number. ERPs make this easy by trending DSO continuously.