Days Sales Outstanding (DSO): What It Is and How to Improve It

TL;DR: Days Sales Outstanding (DSO) measures how many days it takes, on average, to collect payment after issuing an invoice. A lower DSO means you get paid faster. Most Australian and NZ small businesses should aim for a DSO under 45 days.

What Is DSO?

Days Sales Outstanding is a financial metric that tells you the average number of days it takes to collect payment from customers after a sale. It is one of the clearest indicators of how efficiently your business converts invoices into cash.

How to Calculate DSO

DSO = (Accounts Receivable ÷ Total Credit Sales) × Number of Days

For example, if your accounts receivable is $150,000 and your credit sales over 90 days were $450,000:

DSO = ($150,000 ÷ $450,000) × 90 = 30 days

This means you collect payment in an average of 30 days after invoicing.

What Is a Good DSO?

A good DSO depends on your industry and payment terms. General guidelines for Australian and NZ businesses:

• Under 30 days, Excellent. You collect quickly.
• 30–45 days, Good. Consistent with standard 30-day terms.
• 45–60 days, Needs attention. Customers are paying late.
• Over 60 days, Cashflow risk. Immediate action needed.

How to Reduce Your DSO

1. Invoice immediately, do not delay sending invoices after delivering goods or services.
2. Set clear payment terms, specify exact due dates, not vague terms like "net 30".
3. Offer multiple payment methods, make it easy for customers to pay.
4. Send reminders before due date, a friendly reminder 3–5 days before reduces late payments.
5. Follow up consistently, structured follow-up within 7 days of overdue.
6. Consider early payment incentives, a small discount for early payment can improve collection speed.
7. Use invoice finance, FundTap lets you access invoice value within hours regardless of when customers pay, effectively reducing your cash-to-cash cycle to near zero.

DSO vs Cashflow

DSO measures collection speed, but your real concern is cashflow. Even a DSO of 30 days creates a 30-day gap between earning money and receiving it. For businesses with high costs and thin margins, that gap matters. Invoice finance addresses the gap directly, you do not need to change your DSO to improve your cashflow.

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