Days sales outstanding

Days sales outstanding, or DSO, is accounts receivable divided by average daily credit sales. It tells you how many days of sales are sitting unpaid. If your terms are thirty days and your DSO is fifty-five, your customers are taking almost a month longer than agreed, and the business is lending them the difference.

It matters because receivables are the largest single use of cash in most BC service, trades and distribution companies, and because DSO is almost entirely within the company's control. Invoicing late, invoicing at month end, not taking deposits, not following up before the due date and not having a rule for when the owner calls all add days. Each day of DSO on a company with meaningful revenue is a real amount of cash out of the bank.

In practice, we track DSO monthly as a trend, by customer and by salesperson where the data allows, and we treat it as a process measure rather than a finance statistic. The fixes are invoicing on delivery, deposits and progress billing, card and pre-authorised debit for small accounts, a collections sequence that starts before the due date and commission paid on collected rather than invoiced revenue. A falling DSO is one of the fastest ways to improve cash without a new sale.