Days Sales Outstanding
The average number of days a company takes to collect payment after a sale, measuring accounts receivable collection efficiency.
FAQs
What is Best Possible DSO and how is it calculated?
Best Possible DSO (BPDSO) = (Current (not yet due) Receivables ÷ Total Revenue) × Days in Period. It represents the theoretical minimum DSO if all overdue invoices were collected immediately, leaving only current invoices. Comparing actual DSO to BPDSO quantifies how much of your DSO is due to past-due invoices vs. normal payment timing — the difference is the collections improvement opportunity.
How does DSO affect a company's credit facility availability?
Many revolving credit facilities and asset-based lending (ABL) facilities use eligible AR as collateral, with advance rates of 70–85% against current, non-disputed receivables. Rising DSO (more AR aging beyond 90 days) reduces eligible collateral and thus available credit. Lenders monitor DSO as a key performance indicator in credit agreements.
What DSO should a B2B SaaS company target?
B2B SaaS companies billing via invoice should target DSO of 30–45 days for annual contracts and 45–60 days for multi-year contracts with installment billing. Companies using credit card billing for SMB customers can achieve near-zero DSO. The key benchmark is whether DSO is declining over time as the collections function matures — not the absolute level.
Related Terms
Accounts Receivable
Amounts owed to a business by customers for goods or services delivered but not yet paid for.
Days Payable Outstanding
The average number of days a company takes to pay its vendors, measuring how efficiently a company manages its accounts payable.
Dunning
The process of systematically communicating with customers to collect overdue payments, through a sequence of increasingly urgent reminders.
Working Capital
The difference between current assets and current liabilities, measuring a company's short-term liquidity and operational efficiency.