Contractor Finance Glossary
What is Days Sales Outstanding (DSO)?
Definition reviewed .
Also called: DSO
Days sales outstanding (DSO) estimates the days of credit revenue represented by billed accounts receivable. It is a receivables-to-revenue ratio expressed in days, not the observed average payment delay for individual invoices.
DSO turns billed receivables into a number you can trend. Rising DSO can signal slower collections, but falling period revenue or billing previously earned work at period end can also raise the ratio. Check invoice aging and cohort collection rate before diagnosing payment behavior.
Progress billing and retainage affect the basis. Separate ordinary receivables from retainage and reconcile revenue and AR to the same scope. Unbilled work and WIP underbillings do not enter billed AR, so healthy DSO can coexist with cash stuck before invoicing.
How it is calculated
DSO = average billed credit accounts receivable divided by credit revenue for the same period, times days in that period. Use a consistent gross/net and retainage basis, disclose it, and avoid the ratio when credit revenue is zero.
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