What is Days Sales Outstanding (DSO)?
The average number of days from sale to payment collection.
In detail
DSO stands for Days Sales Outstanding. A common calculation is: accounts receivable ÷ sales revenue × number of days. The higher the number, the longer money is tied up with customers, and the more capital the company needs to keep operating.
For example
A quarter (90 days) has sales of RMB 9 million and accounts receivable at quarter-end of RMB 3 million, so DSO = 3 ÷ 9 × 90 = 30 days.
How companies use it
Look at collection days and overdue amounts by customer, and adjust credit limits or payment terms for slow payers. Comparing actual collection days with contractual terms shows whether customers pay as agreed.
Common misconceptions
Looking only at the overall average. A few large customers with serious overdue balances can be masked by many small customers who pay on time.
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