Days Sales Outstanding (DSO)
Brief Definition
What is Days Sales Outstanding (DSO)?
Days Sales Outstanding (DSO) is a financial metric that measures the average number of days it takes a company to collect payment after a sale has been made. It's calculated by dividing accounts receivable by total credit sales, then multiplying by the number of days in the period.
Why DSO Matters
A high DSO means your business is waiting a long time to collect payment, which ties up working capital and can create cash flow problems. A low DSO means you're collecting quickly and can reinvest that cash into growth, inventory, or operations. For most B2B companies, DSO is one of the most closely watched financial health indicators.
Reducing DSO with Third-Party Financing
When merchants offer checkout financing through a third-party provider, their DSO drops dramatically — often to just 1-2 days. The financing provider pays the merchant upfront (typically within 48 hours), while the buyer repays over their chosen terms. This effectively decouples the merchant's cash collection from the buyer's payment timeline.
Key Takeaways
- DSO measures how quickly a business collects payment after sales
- Lower DSO means better cash flow and working capital
- B2B companies often struggle with high DSO due to extended payment terms
- Third-party financing can reduce merchant DSO to 1-2 days