Definition
The average number of days it takes to collect payment after a sale.
Why it matters
DSO = (accounts receivable ÷ credit sales) × days in period.
Where it shows up in a deal
A funder computes DSO from your aging and sales ledger before quoting, because it is the closest single number to what the facility will cost. It reappears at every review, and a DSO that drifts upward is one of the first things that prompts a pricing or advance-rate conversation.
What it affects
- Cost scales directly with days outstanding, so DSO translates into fee dollars almost one for one.
- DSO measured per customer shows which accounts are worth financing and which are worth chasing.
- Seasonal businesses should use a rolling figure, since a single quarter distorts the result.
- A DSO far above stated terms signals billing or acceptance problems, not just slow buyers.
A worked example
AR of $740,000 against $2,400,000 of credit sales in a 90-day quarter gives DSO = ($740,000 / $2,400,000) x 90 = 27.75 days. At 1.5% per 30 days prorated daily, an invoice collected in 28 days costs 1.4% of face value while the same invoice at 56 days costs 2.8%.
The common mistake
Related terms
- Aging ReportA report that groups unpaid invoices by how long they've been outstanding.
- Net TermsThe number of days a customer has to pay, such as net 30 or net 60.
- Discount RateThe fee a factor charges, usually expressed per 30 days or per 10-day increment.
- Cash Conversion CycleThe number of days between paying for inventory and collecting cash from customers.
Questions about how days sales outstanding affects your facility?
Call (929) 658-8087 or request a written quote — no obligation, no credit impact.
