Term · Cash Flow & Working Capital
DSO
In briefDSO (Days Sales Outstanding) indicates how many days on average lie between revenue and payment receipt. A high or rising value ties up capital in receivables and can point to weaker payment collection. Factoring or receivables sales can, however, distort the metric.
Definition
DSO (Days Sales Outstanding) measures the average time in days between revenue recognition and payment receipt. The metric shows how long capital is tied up in open receivables. A rising value indicates slower payment collection or a weakening of receivables management.
How it is calculated
Formula. DSO = (average trade receivables ÷ revenue) × number of days in the period
Why it matters for small caps
In small caps with tight liquidity, a high DSO ties up capital and can shorten the cash runway. A suddenly rising DSO can also point to sales problems or aggressive revenue recognition.
Common misreadings
- A low DSO is not inherently good: it can also result from factoring or receivables sales that artificially reduce the balance.
In the process
Frequently asked
What does a rising DSO mean?
Receivables are settled more slowly on average. Causes can be declining payment discipline among customers, sales problems, or looser revenue recognition.
How does DSO relate to the cash conversion cycle?
DSO is the receivables component of the cash conversion cycle. Together with inventory and payables days, it yields the total capital tied up in working capital.
Can a low DSO be misleading?
Yes. If receivables are sold or pre-financed via factoring, the reported balance falls without customer payment behavior having improved.
Related terms
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.