Days Sales Outstanding is calculated as (accounts receivable ÷ total credit sales) × number of days in the period. A DSO of 45 means that, on average, 45 days pass between issuing an invoice and being paid for it.
DSO only has meaning against context: your payment terms and your industry. A DSO of 40 against Net 30 terms means clients run ten days late on average; the same 40 against Net 60 means they pay early.
Why It Matters
DSO is the single number that summarises whether your invoicing process works. Rising DSO is an early warning that shows up before cash problems do — it means invoices are ageing, terms are slipping, or collections have gone quiet. Tracking it monthly turns "we should chase invoices more" into a measurable goal: bring DSO from 48 to 35.
Example
A studio has $30,000 in receivables and billed $90,000 over the last quarter (91 days). DSO = (30,000 ÷ 90,000) × 91 ≈ 30 days. On Net 30 terms, collections are running exactly on time.
Frequently Asked Questions
What is a good DSO?
One at or below your stated payment terms. Against Net 30, a DSO in the low 30s is healthy; what counts as normal varies significantly by industry, so trend matters more than any absolute number.