This metric varies significantly across industries, influenced by distinct business models and payment practices. Broadly speaking, a DSO ratio of 45 days or fewer is often seen as ‘good’ for most companies. However, what constitutes a high or low DSO can differ markedly depending on the specific industry and company type.
- As a business owner, you can also view DSO as the number of days it takes for credit sales to be converted to cash, or the number of days that receivables remain outstanding until they’re collected.
- In manufacturing industries, where customers are often given longer payment terms, the DSO value can be 60 days or even higher.
- It is quick to deploy and ready to integrate with ERPs like Oracle NetSuite, Sage Intacct, MS Dynamics,and scales to meet the needs of your order-to-cash process.
- In fact, with this understanding, you can find out more about the effectiveness of your accounts receivable processes, particularly credit and collections.
- Customer satisfaction might be declining, or the salespeople may be offering longer terms of payment to drive increased sales.
Getting paid quicker means more funds to reinvest for your business operations. With the right tools at hand, you can master your accounts receivable process and stay on top of your cash flow. The days sales outstanding (DSO) is a working capital metric that measures the number of days it takes a company to retrieve cash payments dso meaning from customers who paid using credit. In the fast-paced world of business finance, understanding and managing key metrics can be the difference between success and stagnation. Among these metrics, Days Sales Outstanding (DSO) stands out as a critical indicator of a company’s financial health and operational efficiency.
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Let’s take a real-world example of how Apple strategically sustains a negative cash conversion cycle, setting it apart from competitors like Samsung. For a detailed analysis of how these dynamics play out in the tech industry, check out Apple’s story. While these tips can certainly help improve DSO, businesses must also pay close attention to these instances to avoid any possible misinterpretation of DSO. Beyond the score itself, you should also pay attention to how your DSO is trending — is it going up or down?
Recognized as one of the best metrics to complement DSO, it provides valuable insights into the performance of the order-to-cash teams. Reducing DSO is a relatively straightforward way to strengthen your company’s cash flow. When executives realize the impact lower DSO can have, those leaders are likely to lend needed support and provide a strategic focus for the initiative.
Benchmarking DSO: What’s a Good DSO for My Industry?
Monitoring DSO enables businesses to identify and address problem payers in the customer base and serves as a reminder to stay on top of unpaid invoices. This presents great opportunities to enhance customer relationships as much as to accelerate payments. Invoiced offers Accounts Receivable Automation software that allows businesses to improve the efficacy of their A/R processes. From automated invoicing and collections to payments, analytics (like DSO), and integration capabilities, Invoiced puts the world of A/R at your fingertips. Schedule a demo – live and tailored to your business – to discover how efficient your A/R can be with Invoiced. If a company has a drastically higher DSO when compared to its peer, it may be helpful to start considering if we should classify those accounts receivable as bad debts.
- George Michael International Limited reported a sales revenue for November 2016 amounting to $2.5 million, out of which $1.5 million are credit sales, and the remaining $1 million is cash sales.
- Therefore, it’s crucial to monitor your invoicing process to prevent misjudging DSO.
- Increase the likelihood of your getting paid on time by nudging customers with friendly reminders as a payment date approaches.
- DSO represents the number of days it takes for a company to convert its accounts receivables into cash.
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- Having identified potential opportunities for improvement, process mining enables you to dig into the underlying cause of the issues.