cash-flow
Days Sales Outstanding (DSO) Calculator
Days Sales Outstanding (DSO) measures the average time between sending an invoice and collecting payment. High DSO ties up working capital — every day extra is a day your money is funding the customer's operations instead of yours. This calculator runs your DSO + flags health tier so you know where to focus AR cleanup.
Educational estimate based on the inputs you entered — not financial, legal, or tax advice. Verify against your specific situation before acting on this output.
How it works
Methodology
Inputs
- Accounts receivable balance
- Total outstanding AR on the balance sheet at the measurement date.
- Annual revenue
- Trailing 12-month revenue. For seasonal businesses, use a rolling 12-month total rather than a single quarter.
Formula
DSO = (Accounts receivable ÷ Annual revenue) × 365 Health bands: • Under 30 days → excellent • 30 – 45 days → healthy (typical B2B target) • 45 – 60 days → watch • 60 – 90 days → high — collection process needs work • Over 90 days → crisis — AR is functionally a free loan to customers
Assumptions
- DSO is industry-dependent — construction businesses with AIA progress billing routinely run 60-90 days as standard, not as crisis.
- Track your own DSO over time — the trend matters more than any absolute benchmark.
- Doesn't model bad debt write-offs separately — AR balances should net out provisions for uncollectible accounts.
Sources
Worked examples
B2B service business
- Accounts receivable
- $95,000
- Annual revenue
- $840,000
DSO 41 days — healthy band for B2B service. Trend matters more than the absolute number.
Frequently asked
Questions readers ask
What's a good DSO for a small business? +
Industry-dependent. B2B service businesses target 30-45 days. Construction (AIA progress billing) commonly runs 60-90. Auto-debit / subscription models can be under 10. Track your own DSO over time — the trend matters more than any absolute benchmark.
How can I reduce my DSO? +
Faster invoicing (send within 24 hours of work completion, not weekly batched), shorter payment terms (net-15 instead of net-30 where possible), upfront deposits, payment incentives (1% discount for net-10), auto-debit for recurring customers, factor your worst-paying accounts.
Is DSO the same as average collection period? +
Yes — DSO and average collection period are the same metric, just different names for it. Both measure the average number of days between invoicing and collecting payment, calculated as (accounts receivable ÷ annual credit sales) × 365. Some analysts distinguish by using only credit sales (excluding cash sales) in the denominator for a more precise number.
How does DSO relate to cash flow? +
DSO directly drives how much of your revenue is sitting uncollected at any given time. A business doing $1M/year at 60 DSO has roughly $164K permanently tied up in receivables versus $82K at 30 DSO — that gap is cash that could otherwise fund payroll, inventory, or debt service. Reducing DSO by even 10-15 days often frees up more working capital than raising a small loan.
My DSO is still in the healthy range — why should I care if it's trending up? +
A rising trend usually signals a real underlying issue — a key customer paying slower, weaker collections follow-up, or looser credit terms extended to win business — well before the number crosses into a 'bad' band. Catching the trend early (quarter-over-quarter, not just year-over-year) lets you fix the process before it becomes a cash crunch.
This tool is for educational purposes only and is not financial, legal, or tax advice. Final terms and eligibility depend on lender underwriting; consult a tax professional before acting on tax-tool output. ClearValue Lending is a funding platform.