What DSO tells you
Days sales outstanding (DSO) is the average number of days it takes you to collect after a sale on credit. The standard formula divides your accounts receivable by your credit sales for a period, then multiplies by the number of days in that period (Investopedia).
Compare it to your payment terms. If you sell on net 30 and your DSO is well above that, stores are paying you late on average, and the gap is cash you are lending them for free.
How to fill it in
- Accounts receivable balance: everything stores owe you today, current and past due. Your AR aging report total is the number.
- Credit sales in the period: what you invoiced on terms over the same window. Leave out cash-on-delivery orders, since they never sit in receivables.
- Period: pick the window your sales cover. A longer window smooths out one big order.
- Your payment terms: optional. Add them to see how much cash sits past terms.
Say a brand has $180,000 owed and invoiced $270,000 in the last 90 days. Its DSO is 60 days. On net 30 terms, about $90,000 of that is cash it would already have if stores paid on time. That is a worked example, not customer data.
What moves the number
- Invoice the day product ships. Every day an invoice waits is a day added to DSO.
- Remind on a schedule, not when you remember. See our research on payment reminder emails.
- Make paying easy. A pay link on every invoice beats a phone tag about mailing a check.
- Offer a plan instead of a standoff. A payment plan agreement turns an old balance into a schedule.
- Put your terms in writing. Build one with the net-terms policy builder.
If you want the follow-up done for you, in your name, that is what ShelfSpace accounts receivable does. You can also see what a late invoice costs you with the late AR cost calculator.