DSO Formula with Example

DSO = (Ending accounts receivable ÷ Credit sales) × Days in the period. It estimates how many days, on average, it takes to collect after a credit sale.

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Formula

DSO = (Accounts receivable ÷ Credit sales) × Number of days. Use credit sales only and the same period for both numbers.

Worked example

Receivables of 1,200,000 against 3,000,000 of quarterly credit sales: 1,200,000 ÷ 3,000,000 × 90 = 36 days. With 30-day terms, customers pay about 6 days late on average.

What is a good DSO?

Compare it with your payment terms. A DSO close to terms is healthy, while a DSO far above terms signals late payers or slow invoicing. Benchmarks differ by industry.

How to reduce DSO

Invoice on delivery, state clear terms, send reminders before and after the due date, offer easy payment methods, and review overdue accounts weekly.

Frequently asked questions

Credit sales only.

Monthly or quarterly, kept consistent.

ADD (average days delinquent) isolates lateness beyond terms.

General information, not tax, legal or accounting advice. Rules and rates change; confirm with a qualified professional. Only document real transactions.