Billings & Collections
Days Sales Outstanding (DSO): Definition, Formula, and How It Helps You Understand Cash Conversion
Days Sales Outstanding (DSO) measures how many days it takes, on average, for a business to collect payment after making a sale. It’s one of the clearest indicators of how quickly revenue turns into usable cash.
A lower DSO means faster collections and healthier cash flow. A higher DSO can signal delays that might affect budgeting, hiring, and long-term planning.
See it live in Pluvo
What Is Days Sales Outstanding?
DSO looks at the relationship between your revenue and the average amount of money customers still owe. It tells you, in plain terms, how long your business waits to get paid.
Finance teams rely on DSO because it connects directly to liquidity and operational flexibility. If it takes too long to collect payments, even strong sales may feel less productive from a cash perspective.
Why DSO Matters
Monitoring DSO helps you:
Understand how long receivables stay outstanding
Spot early signs of customer strain or inefficient follow-up
Improve collections processes
Assess credit risk in different customer segments
Strengthen cash flow forecasting
Validate whether your billing operations support your growth
For subscription or recurring revenue businesses, a predictable DSO supports more reliable planning and smoother scaling.
DSO Formula
Average Accounts Receivable
Typically the average of beginning and ending AR.
Revenue
Total revenue for the period (credit sales for industries that distinguish).
Number of Days
Most calculations use 365 for annual DSO.
Example Calculation
A company generates $1,000,000 in revenue and holds an average of $150,000 in accounts receivable.
If this company expects payment within 30 days, a DSO of ~55 suggests collections are slower than expected and may need attention.
How to Interpret DSO
A lower DSO may indicate:
Strong customer payment habits
Smooth invoicing and follow-up processes
Stable cash flow
A higher DSO may indicate:
Slow customer payments
Inefficient billing or unclear terms
Contract structures that delay recognition
Larger enterprise customers with approval cycles
Interpretation depends on industry norms, billing cadence, and customer mix.
Benchmarks for DSO
There is no universal “good” DSO, but common patterns include:
Businesses with shorter billing cycles aim for 30–45 days
Subscription and enterprise businesses may trend higher due to approvals and procurement steps
Companies with milestone billing may see more variability
Comparing DSO to your historical trend is often more useful than external benchmarks
Knowing your expected payment window helps determine what’s healthy for your business.
DSO vs. Average Collection Period
In many service and SaaS businesses, the two metrics converge because most revenue is credit-based.
DSO uses total revenue
ACP uses net credit sales
In practice, they often tell a similar story about how long it takes to collect cash.
Common Mistakes When Using DSO
Ignoring the impact of large invoices
Treating month-to-month swings as long-term trends
Not pairing DSO with AR Aging for deeper insight
Overlooking customer-specific payment patterns
Using revenue instead of credit sales in industries where both matter
Failing to investigate sudden changes in the number
Avoiding these mistakes keeps DSO accurate and useful.
Related Metrics to Track With DSO
DSO becomes much more powerful when tracked alongside:
AR Aging
AR Turnover
Average Collection Period
Average Days Delinquent
Collections Effectiveness Index
Invoice Status (Count and Amount)
Together they provide a full picture of payment behavior and cash timing.
How to Analyze DSO in Pluvo
Step 1: Map your AR balances and revenue into Pluvo.
Step 2: Pluvo calculates DSO based on your time period.
Step 3: Use scenarios to test changes in terms, billing cadence, or customer mix.
Step 4: Connect DSO to your cash flow plan to see how slow or fast payments reshape runway and budgeting.
This turns your collections timing into a forward-looking planning tool.
Try This Metric in Pluvo
Model how your DSO affects cash, hiring plans, and operating decisions.
Explore DSO in Pluvo → Book a demo
FAQs
What does a high DSO mean?
It usually means it’s taking longer than expected to collect payment, which may cause cash delays.
What does a low DSO mean?
Fast collection, reliable customer behavior, and healthy liquidity.
How often should DSO be reviewed?
Monthly or quarterly for most businesses. High-volume teams may check it weekly.
Is DSO the same as AR?
No. AR is the balance owed. DSO converts that balance into an average number of days.