What is a good day sales outstanding? (2023)

What is considered a good days sales outstanding?

What's a “good” DSO number? There is not a single DSO number that represents excellent or poor accounts receivable management, since this number varies considerably by industry and by the underlying payment terms. On average, any number below 40 is typically considered a “good” number.

Days sales outstanding (DSO) is an accounting metric that measures the average number of days it takes a business to receive payment for goods and services purchased on credit. The lower the DSO, the faster payments are collected. The higher the DSO, the longer it takes the company to see its money.

How to Calculate DSO. Your firm should aim to have as low a DSO value as possible because it indicates that you're doing an excellent job of collecting outstanding debts. A DSO value between the lower 50s and upper 80s is typical for most architecture, engineering, or environmental consulting (AEC) firms.

We can say on average, one day's sales is about $1 million. If your average accounts receivable (AR) balance for a given month is $48 million, that means you have 48 days worth of sales sitting on your book.

Day Sales Outstanding or DSO refers to the average number of days a business takes to collect its receivables after a sale. It is considered a popular metric by diverse industries to estimate their financial health. Usually, this is measured by calculating the number of days it takes to convert credit sales to cash.

A higher DSO than your payment terms means you're at risk of running into cash flow problems, especially if you are growing fast. And since overdue invoices are more likely to never get paid, you also face the risk of never seeing the money your clients owe you.

Days sales outstanding (DSO) is a working capital ratio which measures the number of days that a company takes, on average, to collect its accounts receivable. The shorter the DSO, the faster the company collects payment from its customers – and the sooner it is able to make use of its cash.

A lower DSO value indicates that it's taken fewer days to collect payments for the sales you've made. If your DSO is too low, it indicates that your firm is too rigid with payment terms and policies, like penalizing your customer for delaying the payment by only one day.

Is DSO a KPI?

Days Sales Outstanding is the number of days it takes an organization to collect its accounts receivable from its customers. It is calculated by dividing the Accounts Receivable balance by the daily sales.

If the result is a low DSO, it means that the business takes a few days to collect its receivables. On the other hand, a high DSO means it takes more days to collect receivables. A high DSO may lead to cash flow problems in the long run.

Typically, businesses will have a DSO of 30 from the traditional billing notion of n/30, which means collections on invoices that occur on average in 30 days. Generally, health care businesses have an average of 45-60 days sales outstanding if they work with a payer to collect patient revenue.