Days Sales Outstanding - DSO

AAA

DEFINITION of 'Days Sales Outstanding - DSO'

A measure of the average number of days that a company takes to collect revenue after a sale has been made. A low DSO number means that it takes a company fewer days to collect its accounts receivable. A high DSO number shows that a company is selling its product to customers on credit and taking longer to collect money.

Days sales outstanding is calculated as:


Days Sales Outstanding (DSO)

INVESTOPEDIA EXPLAINS 'Days Sales Outstanding - DSO'

Due to the high importance of cash in running a business, it is in a company's best interest to collect outstanding receivables as quickly as possible. By quickly turning sales into cash, a company has the chance to put the cash to use again - ideally, to reinvest and make more sales. The DSO can be used to determine whether a company is trying to disguise weak sales, or is generally being ineffective at bringing money in. For most businesses, DSO is looked at either quarterly or annually.

For more on DSO and how to lower it, read Understanding The Cash Conversion Cycle and Speed Up Receivables To Avoid A Cash Crunch

VIDEO

Loading the player...
RELATED TERMS
  1. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts ...
  2. Cash Discount

    An incentive that a seller offers to a buyer in return for paying ...
  3. Credit

    1. A contractual agreement in which a borrower receives something ...
  4. Accounts Receivable - AR

    Money owed by customers (individuals or corporations) to another ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors ...
  6. Cash Flow

    1. A revenue or expense stream that changes a cash account over ...
RELATED FAQS
  1. What are some of the limitations and drawbacks of using the cash conversion cycle ...

    The cash conversion cycle, or CCC, is an important financial metric used by investors, analysts and a company's own internal ... Read Full Answer >>
  2. What sorts of factors decrease cash flow from operating activities?

    The operations section of the cash flow statement reconciles net income and cash flows by adding back noncash expenses and ... Read Full Answer >>
  3. How should investors interpret a company's cash conversion cycle (CCC)?

    The cash conversion cycle (CCC) is a measure of liquidity that shows how quickly (or slowly) a company cycles between cash ... Read Full Answer >>
Related Articles
  1. Insurance

    Working Capital Works

    A company's efficiency, financial strength and cash-flow health show in its management of working capital.
  2. Investing Basics

    The Working Capital Position

    Learn how to correctly analyze a company's liquidity and beat the average investor.
  3. Investing Basics

    Understanding The Cash Conversion Cycle

    Find out how a simple calculation can help you uncover the most efficient companies.
  4. Markets

    Free Cash Flow: Free, But Not Always Easy

    Free cash flow is a great gauge of corporate health, but it's not immune to accounting trickery.
  5. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  6. Budgeting

    Do I Need A Personal Accountant?

    You know you need to keep your personal finances better organized. Should you hire professional help, and if so what kind?
  7. Investing

    What's a Run Rate?

    Run rate is a term used to denote annualized earnings extrapolated from a shorter time frame. Management uses the run rate to estimate future revenues.
  8. Professionals

    Financial Accounting

    Financial accounting is the process of gathering, recording, summarizing and reporting financial data relating to a business. The ultimate goal is to accurately report the financial picture and ...
  9. Investing

    What are Direct Costs?

    Direct costs for finished goods refer to the items and services directly used in production. Other costs such as rent and insurance for the production site are indirect costs. These costs may ...
  10. Investing

    What is Contingent Liability?

    A contingent liability is an amount that might have to be paid in the future, but there are still unresolved matters that make it only a possibility. Lawsuits and the threat of lawsuits are the ...

You May Also Like

Hot Definitions
  1. Loan-To-Value Ratio - LTV Ratio

    A lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage.
  2. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  3. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  4. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  5. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  6. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
Trading Center