Day Sales Outstanding

Days Sales Outstanding (DSO) is a financial measure that quantifies the average number of days required for a company to collect payment after a credit sale is completed. It acts as an essential gauge of a company's liquidity, cash flow, and the effectiveness of its collections team. A reduced DSO figure implies that a company is swiftly converting its receivables into cash, while a higher figure may indicate potential challenges with its credit policies or collection strategies.

This metric is crucial for evaluating a company's liquidity and cash flow. It reflects how effectively a business gathers payments from its credit transactions. A low DSO signifies prompt cash collection, which is vital for funding operations and fostering growth. This is particularly important for companies that depend on consistent cash flow.

Moreover, this metric provides insights into operational efficiency and credit management. It assists stakeholders in assessing the success of a company's collection efforts. Keeping track of DSO trends can highlight possible issues, enabling timely modifications to credit policies.

Various internal and external factors can affect a company's Days Sales Outstanding. These factors can range from industry norms to specific company regulations. Recognizing these influences is essential for effectively managing accounts receivable.

Although both are important working capital indicators, DSO and DPO represent different aspects of a company's cash conversion cycle.