What is DSO?
Nexa Consultancy | Startup & Finance Glossary
Days Sales Outstanding (DSO) is a financial ratio that measures the average number of days it takes for a company to collect payment from its customers after a sale has been made. It is a key component of the cash conversion cycle.
For Startups: A high DSO can signal a cash flow problem, as it means a company's cash is tied up in accounts receivable. Startups, especially those selling to large enterprises with long payment cycles, must manage their DSO carefully to maintain liquidity.
For B2B Businesses: Reducing DSO is a constant focus for finance and collections teams. Strategies include offering early payment discounts, implementing stricter credit policies, and having a systematic follow-up process for overdue invoices.
Calculation: DSO = (Accounts Receivable / Total Credit Sales) * Number of Days in Period
Example: A company has ₹10 Lakhs in accounts receivable and total credit sales of ₹50 Lakhs in a quarter (90 days). Its DSO is (10L / 50L) * 90 = 18 days.