What is Days Sales Outstanding?
DSO measures how long it takes to turn a sale into cash in your bank account. Lower is better. A DSO of 30 means you collect payment about a month after invoicing.
Why DSO Matters for Founders
Cash timing kills companies. A SaaS business with 60-day DSO and monthly payroll obligations can be profitable on paper but scrambling for cash every cycle. Understanding DSO helps you anticipate cash crunches and negotiate better terms.
For ecommerce founders selling wholesale or B2B, DSO directly impacts working capital needs. Every 10-day increase in DSO means more cash trapped waiting for customer payments.
Managing DSO
Tactics to reduce DSO include offering early payment discounts, automating invoice reminders, requiring deposits, and implementing stricter credit policies for slow payers.
DSO = (Accounts Receivable ÷ Total Credit Sales) × Number of Days
Or: DSO = 365 ÷ Receivables Turnover
Your SaaS company has:
- Accounts Receivable: $250,000
- Monthly Credit Sales: $200,000
DSO = ($250,000 ÷ $200,000) × 30 = 37.5 days
On average, customers pay about 38 days after invoicing. If your terms are net-30, you have a collection problem to address.