Days Sales Outstanding measures the average number of days it takes a company to collect payment after a sale has been made. A lower DSO means the business converts its receivables into cash faster, reducing working capital pressure. Invoice financing and factoring are the primary tools for reducing DSO.
What It Is #
Whenever a business sells on credit — issuing an invoice instead of collecting payment immediately — it creates an account receivable. DSO tracks how long those receivables sit unpaid before becoming cash. It is a direct measure of collections efficiency and credit policy effectiveness.
High DSO means cash is locked up in unpaid invoices. Low DSO means the business is either collecting quickly or using financing tools to accelerate cash conversion.
The Formula #
DSO = (Accounts Receivable / Total Credit Sales) × Number of Days
Interpreting DSO #
| DSO Range | What It Signals |
|---|---|
| Under 30 days | Very efficient collections or aggressive early payment tools |
| 30–45 days | Healthy — aligned with standard net-30 terms |
| 45–60 days | Moderate delay — review collections process |
| 60–90 days | Elevated — cash flow pressure building |
| 90+ days | High risk — consider invoice financing or factoring |
How Financing Reduces DSO #
- Invoice Financing — borrow against approved invoices the same day, without waiting for customer payment
- Factoring — sell invoices outright to receive 80–90% of value within 24–48 hours
- Early Payment Programs — buyers can offer dynamic discounting, incentivising suppliers to accept early payment
Practical Example #
A supplier has €600,000 in annual credit sales and €100,000 in accounts receivable. DSO = (€100,000 / €600,000) × 365 = 60.8 days
By using invoice financing on 50% of receivables, DSO drops to approximately 35 days, freeing €42,000 in additional working capital immediately.