Days Sales Outstanding (DSO)

Days Sales Outstanding (DSO) is a financial metric that indicates the average number of days a company takes to collect payment after a sale is made. It’s a critical measure of accounts receivable efficiency and cash flow health.

Formula:

DSO = (Accounts Receivable / Total Credit Sales) × Number of Days

Interpretation:

• Low DSO: Faster collections and strong cash flow.

• High DSO: Potential cash flow issues or inefficient collections.

Why It Matters:

• Impacts working capital.

• Reflects credit policy effectiveness.

• Important for liquidity management.

Example:

A UAE-based logistics firm with AED 400,000 in outstanding receivables and AED 1,200,000 in credit sales over 90 days has a DSO of 30 days.