CandleFocus Glossary Editor
Days Sales Outstanding (DSO) is an important metric for any business and it measures how quickly customers pay for their goods or services. It is a key metric for every business and is an important factor to consider when assessing the financial health of a business. DSO is an average number calculated from the amount of days between a sale and the date of payment from the customer.
A low DSO indicates that customers are regularly and quickly paying the company on time. This enables the company to have a better cash flow, allowing them to reinvest in their business. The lower the DSO, the more quickly the company can capitalize on opportunities and invest in projects and initiatives which will further benefit their long-term success. Furthermore, a low DSO can make a business more attractive to potential customers and lenders. Generally, a DSO under 45 days is low and indicates good cash flow.
On the other hand, a high DSO suggests that customers aren’t paying quickly or regularly. This can lead to a cash flow problem, as the company won’t have the funds necessary to complete projects, buy goods or even cover its fixed costs. For example, a company may have to pay their employees' salaries, but may find their DSO is too high to cover these expenses. This can lead to financial difficulty for the business.
In short, Days Sales Outstanding is a critical metric for any business. An ideal situation is to have low DSO, which indicates that customers are paying quickly, resulting in better cash flow. In order to improve their DSO, a company can send out invoices on time, offer discounts or even set up automatic payment.
A low DSO indicates that customers are regularly and quickly paying the company on time. This enables the company to have a better cash flow, allowing them to reinvest in their business. The lower the DSO, the more quickly the company can capitalize on opportunities and invest in projects and initiatives which will further benefit their long-term success. Furthermore, a low DSO can make a business more attractive to potential customers and lenders. Generally, a DSO under 45 days is low and indicates good cash flow.
On the other hand, a high DSO suggests that customers aren’t paying quickly or regularly. This can lead to a cash flow problem, as the company won’t have the funds necessary to complete projects, buy goods or even cover its fixed costs. For example, a company may have to pay their employees' salaries, but may find their DSO is too high to cover these expenses. This can lead to financial difficulty for the business.
In short, Days Sales Outstanding is a critical metric for any business. An ideal situation is to have low DSO, which indicates that customers are paying quickly, resulting in better cash flow. In order to improve their DSO, a company can send out invoices on time, offer discounts or even set up automatic payment.