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DSO (days sales outstanding)

Also called: DSO, days sales outstanding

The average number of days it takes customers to pay after an invoice: receivables divided by credit sales, times the days in the period.

DSO (days sales outstanding) is the average number of days it takes customers to pay: DSO = receivables ÷ credit sales for the period × days in the period. For a year, receivables ÷ annual credit sales × 365. It turns a balance in hryvnias into days of sales waiting to be collected.

On its own the number says little; compared with what you expect, it says a lot. Expected DSO comes from the billing calendar plus the payment terms: if work is invoiced at the end of each quarter, the average day of work already waits about 45 days for its invoice, and 60-day terms add 60 more. A DSO above that means some clients pay late; a rising DSO is an early warning before cash runs short.

Use it with care. Seasonal sales distort a year-end snapshot, so average the receivables over the period when you can. Count only sales made on credit, not prepaid ones. And DSO is an average: a list of unpaid invoices by age shows which client to call.

Example

Picture a year in which Klasna for Teams sells 3,840,000 UAH of lessons on credit, and 1,180,000 is still unpaid at year end:

DSO = 1,180,000 ÷ 3,840,000 × 365 = 112.16 days.

What the terms explain: quarterly invoices leave the average lesson about 45 days before its invoice, and 60-day terms add 60, so about 105 days. At 105 days the receivables would be about 3,840,000 ÷ 365 × 105 ≈ 1,104,658. The extra 7 days, roughly 75,000 UAH, are clients paying later than they promised. That's where chasing starts.

Common mistakes

  • Comparing DSO with the terms alone. Add the days work waits for its invoice, or late payers look normal.
  • Including prepaid sales. They have no receivable and drag DSO down.
  • Using a year-end snapshot in a seasonal business. Average the receivables when you can.
  • Managing the average. One large late client can hide behind a decent DSO; check invoices by age.

Learn it in the course

  • Receivables and payment terms · What a 60-day payment term really costs, how to put it in the price, when an early-payment discount pays off, and how DSO shows late payers.
  • Working capital: who pays whom first · Prepayments, payouts and invoices: the cash conversion cycle, working capital on one date, when negative working capital funds growth and why other lines eat cash.