# How to work out days sales outstanding (DSO)

DSO is accounts receivable divided by credit sales, times the days in the period. It shows, on average, how many days customers take to pay. Compare it with your terms and track it monthly.

Free tool: [DSO calculator](https://www.pulsify.tech/free-tools/dso-calculator/). Enter receivables, sales and days to get your DSO and compare it with your terms.

## Why it matters

A DSO above your terms means customers pay late and your cash is tied up in debts. Every extra day of DSO is a day of sales you have not been paid for.

DSO is easy to compare over time. If it climbs for three months in a row, find out why.

## The steps

1. **Pick the period.** Use a month, quarter or year. Use the same period for sales and receivables.
2. **Find accounts receivable.** Use the closing balance from the balance sheet or the aged receivables report.
3. **Find credit sales.** Use sales made on credit in the period. Leave out cash sales. Use the same GST treatment as receivables, either both with GST or both without.
4. **Apply the formula.** DSO = accounts receivable / credit sales x days in the period.
5. **Compare with your terms.** If your terms are 30 days and DSO is 36, customers pay about six days late on average.
6. **Work out the cash tied up.** Daily sales times the days over terms is the cash you would free by collecting on time.
7. **Track it each month.** Plot it on a chart. A step up often points to one large customer.

## Worked example

Example Distribution Pty Ltd looks at the quarter from 1 July to 30 September (92 days). Terms are 30 days.

| Number | Working |
| --- | --- |
| Accounts receivable at 30 September | A$210,000 |
| Credit sales for the quarter | A$540,000 |
| DSO | 210,000 / 540,000 x 92 = 35.8 days |
| Daily sales | 540,000 / 92 = A$5,870 |
| Days over terms | 35.8 - 30 = 5.8 days |
| Cash tied up | A$5,870 x 5.8 = about A$34,000 |

Collecting on terms would free about A$34,000 in cash.

## Common mistakes

- Including cash sales in the sales figure.
- Mixing GST-inclusive receivables with GST-exclusive sales.
- Using a monthly balance with a yearly sales total.
- Looking at DSO without looking at the aged report.

## Common questions

### What is a good DSO?

One close to your terms. If terms are 30 days, 30 to 35 is good.

### Does DSO use total sales or credit sales?

Credit sales give the truest picture. Many people use total sales for a quick measure.

### How do I lower DSO?

Invoice on time, send reminders before the due date, chase quickly and ask for deposits on large jobs.

## Next step

Use the [DSO calculator](https://www.pulsify.tech/free-tools/dso-calculator/) first. Then see [how accounts payable and receivable work together](https://www.pulsify.tech/blog/accounts-payable-and-accounts-receivable-australia/).

Source: https://www.pulsify.tech/how-to/work-out-days-sales-outstanding/ (last checked 2026-10-20)