Days Sales Outstanding (DSO) — What It Is & 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 — Cash flow 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 Cash Flow

DSO measures collection speed, but your real concern is cash flow. 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 cash flow.

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