Days Sales Outstanding
Definition
Days sales outstanding, or DSO, is the average number of days it takes a business to collect payment after an invoice has been issued.
What Days Sales Outstanding Means for Your Business
What it means
DSO is the speedometer on collections. If you bill $30,000 a day and carry $900,000 in AR, your DSO is 30 days. Shorter is better.
Why it matters
DSO is the single best measure of working capital efficiency. Every day you cut from DSO releases real cash back into the business without raising prices or cutting costs.
How contractors use it
Finance calculates DSO monthly and tracks the trend. Owners set targets by customer type, for example 5 days for residential (mostly paid on the spot) and 30 days for commercial. Collection effort, deposit policies, and payment terms are all DSO levers.
Real-World Example
An HVAC contractor dropped DSO from 44 to 28 days in one quarter by requiring credit card on file for residential and switching commercial customers to 2/10 Net 30. That freed $140,000 in trapped cash.
Related Terms
Accounts Receivable
Accounts receivable is the total amount of money owed to a business by customers for services already delivered but not yet paid.
Invoice Aging
Invoice aging is a report that groups unpaid invoices by how many days they are past due, typically in buckets of 0-30, 31-60, 61-90, and 90-plus.
Payment Terms
Payment terms are the written rules that define when and how a customer must pay for services rendered.
Net 30
Net 30 is a payment term that gives the customer 30 calendar days from the invoice date to pay the full amount due.
Invoice
An invoice is a billing document that lists the work performed, parts used, and total amount due from the customer.
Put This Into Practice with Free Software
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