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Days Sales Outstanding: Definition and Meaning
Definition
Days sales outstanding, commonly called DSO, is a measure of the average number of days it takes a business to collect payment after a credit sale.
Why It Matters
DSO can help management monitor collection efficiency and its effect on cash flow. Rising DSO may indicate slower customer payment, billing delays, disputes, weak collection procedures, or changes in the mix of customers and projects.
A DSO calculation should be considered alongside aging reports, customer concentration, contract terms, seasonality, retainage, and billing practices.
Example
If a company’s customers are taking longer to pay invoices than in prior periods, its DSO may increase.
Related Terms
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