Understanding DSO (Days Sales Outstanding): Why It Matters for Your Business

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Ever checked your bank account at the end of the month and wondered why there's less money than your sales figures suggest there should be? The culprit might be your DSO.
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What exactly is DSO?
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‍DSO stands for Days Sales Outstanding, it's simply the average number of days it takes your customers to pay you after you've delivered your work and sent an invoice. Think of it as the lag time between doing work and getting paid for it.

To calculate your DSO: take your total accounts receivable (money owed to you), divide it by your total sales for a period, then multiply by the number of days in that period.

For example, if you had $50,000 in unpaid invoices and $100,000 in total sales over 30 days, your DSO would be: (50,000 ÷ 100,000) × 30 = 15 days.

Why your DSO matters
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A high DSO isn't just an accounting metric. It directly impacts your day-to-day operations in several ways:
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  • Cash flow pressure: The longer your DSO, the longer you're essentially acting as a bank for your clients, financing their operations while waiting to pay your own bills.
  • Growth limitations: When your cash is tied up in unpaid invoices, you can't invest in new opportunities, hire talent, or expand your business.
  • Admin burden: More time spent chasing payments means less time focused on what you do best.
  • Business stability: Extended periods of high DSO can threaten your company's viability, especially if you have fixed expenses like payroll.
 

What's a "good" DSO?

While there's no universal ideal DSO, here are some benchmarks:

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  • Under 30 days: Excellent (you're getting paid quickly)
  • 30-45 days: Good (fairly standard)
  • 45-60 days: Needs attention (cash is sitting in receivables too long)
  • Over 60 days: Problematic (serious cash flow risks)

Remember, your optimal DSO varies based on your industry, client base, and business model.

5 simple ways to improve your DSO
  1. Clear payment terms: Be explicit about when payment is due, and communicate this upfront.
  2. Invoice promptly: Send invoices immediately after work is completed, not at the end of the month.
  3. Offer early payment incentives: Consider a small discount (1-3%) for payments made within 5 days.
  4. Simplify payment methods: The easier it is to pay you, the faster clients will do it. Offering different kinds of payment methods helps the customer with flexibility.
  5. Proactive follow-ups: Send friendly reminders before the due date, not after. If the due date has already passed, be professional and persistent in your follow-ups. 
 
Read more - “How to Manage Late Payments (After the Due Date)” →
 
How Cheque helps reduce your DSO

Cheque was built specifically to address the DSO challenge. Our platform lets you:
  • Set flexible payment terms that work for both you and your clients
  • Offer automated early payment incentives that encourage faster payments
  • Get visibility into when payments are likely to arrive
  • Reduce the time spent on payment admin and follow-ups
 
Unlike financing options that charge fees to solve your cash flow issues, Cheque helps you address the root cause by optimizing how and when you get paid.
 

Take control of your cash flow

Your DSO isn't just an accounting metric, it's a direct indicator of your business's financial health. By taking proactive steps to reduce it, you can improve your cash position, reduce financial stress, and focus on growing your business rather than chasing payments.

Want to see how much you could improve your cash flow by reducing your DSO? Try Cheque alongside your current invoicing system and watch how quickly things improve.

Schedule your demo today →
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