Definition
DSO estimates how many days it takes, on average, to collect cash after you issue invoices. Lower DSO improves cash flow and runway.
Formula
DSO ~ accounts receivable / (revenue per day)
How to use it
- Improve DSO with tighter terms, clearer invoicing, and disciplined collections cadence.
- Segment DSO by customer type and invoice size; a few large accounts can dominate AR.
Measured as
DSO ~ accounts receivable / (revenue per day)
Operator takeaway
- Improve DSO with tighter terms, clearer invoicing, and disciplined collections cadence.
- Segment DSO by customer type and invoice size; a few large accounts can dominate AR.
- Tie Days Sales Outstanding (DSO) to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Cash conversion cycle: turn working capital into runway if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether Days Sales Outstanding (DSO) belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
Guides
- Cash conversion cycle: turn working capital into runway: A practical guide to the cash conversion cycle (CCC): how AR/AP timing changes cash, how to reduce days outstanding, and why runway depends on working capital.
- Runway and burn: gross vs net burn, working capital, and cash levers: A practical guide to runway: compute net burn, understand why cash differs from profit, and how working capital and collections change runway.