Definition
DSO measures accounts receivable collection efficiency. Lower DSO means faster cash collection. Rising DSO may indicate deteriorating credit quality of customers, lax collection policies, or revenue recognition issues. DSO is a critical component of the cash conversion cycle.
functions Formula
DSO = (Accounts Receivable / Revenue) × 365
lightbulb Example
Accounts receivable is $8M on $100M annual revenue. DSO = ($8M/$100M) × 365 = 29 days. This means the company collects payment roughly one month after sale.
verified_user Key Points
- Lower DSO means faster cash collection
- Rising DSO can signal collection problems or aggressive revenue recognition
- Industry benchmarks vary—B2B typically has higher DSO
- Part of the cash conversion cycle calculation