DSO: What is DSO?

The most commonly used measuring instrument in the world of credit management is the DSO (Days Sales Outstanding). The DSO ratio indicates how long it takes on average to get paid for your product or service after you have delivered it. The Credit Management department is often charged with managing this, but in recent years departments such as Sales have become increasingly involved in this. And that’s a good thing: a low DSO is vital for a healthy company

in 4 stappen naar een lagere dso

Help my DSO!

Calculate yourself

There are several ways you can calculate your DSO ratio. An example of a formula is by dividing your outstanding invoices at the end of the month (the debtor balance at the end of the month) by your monthly turnover and multiplying the result by 30. The result is your average payment term in days.

Standard method:

Monthly turnover
————————————————– x 30 = Average payment term in days
Monthly turnover

Quick inventory:

Accounts Receivable Balance
————————————————– x 30 = Average payment term in days
Annual turnover / 12

With the DSO calculator you can also calculate your savings when you bring back the DSO. Just look at how much profit you make when the number of days decreases.

What is a good DSO?

This depends on the payment term you use on your invoices. Do you use a payment term of 30 days? Then an outcome of 30 or lower is perfect. A few days above that is also not worrying. It becomes alarming when the DSO increases by leaps and bounds. If so, it’s time for action.

A good DSO is therefore a low DSO. Is it low? Then your invoices are paid quickly, which is good for your cash flow and liquidity position and therefore the health of your company.

Causes of high DSO

  • Failure to pay or late payments.
  • A poorly organized administration and billing process of a company.
  • Deviating (contractually agreed) payment terms. Large companies, for example, can sometimes demand longer payment terms due to their dominant position.

improve DSO

What we can do for your DSO?

Criticism of DSO

While the DSO is used by many companies, it has also been criticized as a measure of business performance. The mean would be skewed by extremes of, for example, very small and very large amounts and very late and very fast payers. Still, it is never wrong to keep an eye on the DSO. Effective DSO management (regardless of the inevitable late payers that will always be there) always leads to a shorter payment term in the end.