Days Sales Outstanding (DSO)
Definition
Days sales outstanding measures the average number of days it takes to collect cash after a sale: DSO = accounts receivable / revenue x 365 (some practitioners use average AR and/or 360 days — the convention should be applied consistently).
A lower DSO means faster collection and less cash tied up in receivables; a rising DSO can indicate loosening credit terms, weakening customer quality, or aggressive revenue recognition.
DSO combines with days inventory outstanding (DIO) and days payable outstanding (DPO) into the cash conversion cycle: CCC = DSO + DIO − DPO, the number of days cash is tied up in the operating cycle.
Why interviewers ask
DSO shows up in working-capital modeling (receivables are usually forecast off DSO assumptions) and in forensic questions ("revenue is growing 20% but DSO jumped from 45 to 75 days — what might be happening?"). The trap is misremembering the formula direction or mixing revenue and COGS across the DSO/DPO formulas.
Related terms
Interviews don't test definitions — they test recall under pressure.
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