Terms

Day Sales Outstanding

Days Sales Outstanding (DSO) is a financial metric that measures the average number of days it takes for a company to collect payment after a sale is made on credit. It serves as a key indicator of a company's liquidity, cash flow, and the efficiency of its collections department. A lower DSO value suggests that a company is converting its receivables into cash quickly, whereas a higher value may signal potential issues with its credit policies or collection processes.

Importance of Day Sales Outstanding

DSO is a vital metric for assessing a company's liquidity and cash flow. It measures how efficiently a business collects payments from its credit sales. A low DSO means cash is collected quickly, providing capital for operations and growth. This is crucial for businesses that rely on steady cash flow.

This metric also offers insight into operational efficiency and credit management. It helps stakeholders evaluate the effectiveness of a company's collection processes. Monitoring DSO trends can signal potential problems, allowing for timely adjustments to credit policies.

Factors Affecting Day Sales Outstanding

Several internal and external factors can influence a company's Days Sales Outstanding. These elements range from industry-wide practices to specific company policies. Understanding these factors is key to effectively managing accounts receivable.

  • Industry Norms: Different sectors have varying payment cycles; what's normal for one industry may be high for another.
  • Credit Policy: The terms for extending credit and the payment periods offered directly impact collection times.
  • Collection Efficiency: The effectiveness of the accounts receivable department in following up on and collecting overdue payments.
  • Customer Behavior: The payment habits and financial stability of a company's customer base affect how quickly invoices are paid.

Day Sales Outstanding vs. Days Payable Outstanding

While both are key working capital metrics, DSO and DPO measure opposite sides of a company's cash conversion cycle.

  • DSO: This tracks the time to collect customer payments. A low DSO indicates strong liquidity, which is vital for mid-market companies to cover operational costs. A high DSO can signal cash flow issues, though larger enterprises may tolerate higher values due to their financial stability.
  • DPO: This measures the time a company takes to pay its suppliers. A high DPO means the company holds cash longer, improving working capital, but can strain supplier relationships. Enterprises often optimize DPO, while mid-market firms may prioritize prompt payments for strong partnerships.

Strategies to Improve Day Sales Outstanding

This is how you can effectively lower your Days Sales Outstanding.

  1. Review and tighten your credit policies. Perform credit checks on new customers and avoid offering excessively long payment terms.
  2. Streamline your collections process. Ensure invoices are sent promptly and follow up on overdue accounts consistently.
  3. Offer incentives for early payments. A small discount for paying before the due date can significantly speed up cash collection.
  4. Identify and manage high-risk accounts. For customers with a history of late payments, consider requiring upfront payments or stricter terms.
  5. Continuously monitor your DSO. Track this metric over time to measure the impact of your changes and identify new issues early.

Impact of Day Sales Outstanding on Cash Flow

Days Sales Outstanding directly impacts a company's cash flow and overall liquidity.

  • High: A high DSO signals delayed payments, which can create serious cash flow problems.
  • Low: A low DSO means faster cash collection, improving liquidity and reinvestment opportunities.
  • Operations: Quick collections provide necessary cash to cover daily expenses and fund growth.

Frequently Asked Questions about Day Sales Outstanding

What is considered a good DSO?

A "good" DSO varies by industry. Generally, a lower DSO is better, with many businesses aiming for under 45 days. It's best to benchmark against your industry's average to determine what is considered healthy and competitive for your specific market.

How is Day Sales Outstanding calculated?

DSO is calculated by dividing total accounts receivable by total credit sales for a period, then multiplying by the number of days in that period. This formula reveals the average time it takes to collect payments after a sale is made.

Can a high DSO ever be a good thing?

While generally a sign of poor cash flow, a high DSO can be a strategic choice. Offering lenient payment terms might be necessary to attract large, valuable customers in a highly competitive market, but it requires careful risk management.

Other terms

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CI/CD

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ETL

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Segmentation Analysis

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Referral Marketing

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CPQ software

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Marketing Metrics

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Unit Economics

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Marketing Operations

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Sales Operations Key Performance Indicators

Sales Operations KPIs are measurable metrics that track the efficiency and effectiveness of a sales team's operational processes.

Sales Operations Key Performance Indicators

Customer Journey Mapping

Customer journey mapping is the process of creating a visual story of your customers' interactions with your brand across all touchpoints.

Customer Journey Mapping

Account View Through Rate

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Statement of Work

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Total Addressable Market (TAM)

Total Addressable Market (TAM) represents the maximum revenue a company can earn by selling its product or service in a specific market.

Total Addressable Market (TAM)

Customer Retention Cost

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GDPR Compliance

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WordPress

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Sales Objections

Sales objections are reasons or concerns raised by a potential customer as to why they are hesitant or unwilling to make a purchase.

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Personalization in Sales

Personalization in sales means tailoring outreach to a prospect's specific needs, interests, and context to make communication more relevant.

Personalization in Sales

Workflow Automation

Workflow automation uses rule-based logic to run a sequence of tasks that would otherwise require manual human effort to complete.

Workflow Automation

Integration Testing

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Integration Testing

Big Data

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Video Messaging

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Predictive Customer Lifetime Value

Predictive Customer Lifetime Value (pCLV) is a forecast of the total net profit a single customer is expected to generate for your business.

Predictive Customer Lifetime Value

B2B Data Platform

Learn about B2B data platform, including key benefits of B2B data platforms, choosing the right B2B data platform, challenges in implementing B2B data platforms.

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Mid-Market

Mid-market companies are businesses larger than small businesses but smaller than large enterprises, often defined by revenue or employee size.

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Sales Prospecting Techniques

Sales prospecting techniques are methods used by sales teams to identify, contact, and qualify potential customers, also known as prospects.

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Product Qualified Lead

A Product Qualified Lead (PQL) is a user who has experienced a product's value, signaling a strong potential to convert to a paid customer.

Product Qualified Lead

Account-Based Marketing Benchmarks

Account-Based Marketing (ABM) benchmarks are key metrics used to measure the performance and success of your targeted account strategies.

Account-Based Marketing Benchmarks

Data Appending

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SDK

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Brand Equity

Learn about brand equity, including understanding its importance, building strong brand equity, measuring brand equity, & real-world applications.

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Sales Engagement

Sales engagement is the sum of all interactions between a seller and a prospect, aimed at building a relationship and moving a deal forward.

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Custom API integration

A custom API integration is a bespoke connection between software, enabling them to communicate and share data to meet unique business requirements.

Custom API integration

Scalability

Scalability is a company's ability to handle increased workloads or market demands without a drop in performance or a spike in costs.

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Touchpoints

A touchpoint is any time a potential or existing customer comes in contact with your brand, from seeing an ad to receiving an email.

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Remote Sales

Remote sales is selling from a distance. Reps use digital tools to connect with prospects and close deals without meeting them in person.

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Sales Productivity

Sales productivity is the measure of a sales team's efficiency, focusing on maximizing revenue generation while minimizing the resources spent.

Sales Productivity

Electronic Signatures

An electronic signature is a digital method for getting consent on electronic documents. It's a legally binding way to sign agreements online.

Electronic Signatures

Marketing Budget Breakdown

A marketing budget breakdown is a detailed plan that allocates your total marketing funds across various channels, campaigns, and activities.

Marketing Budget Breakdown

Affiliate Networks

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Ideal Customer Profile

An Ideal Customer Profile (ICP) is a detailed description of the perfect, hypothetical company that would get the most value from your product.

Ideal Customer Profile

Customer Acquisition Cost

Customer Acquisition Cost (CAC) is the total cost a business spends to gain a new customer. It includes all sales and marketing expenses.

Customer Acquisition Cost

Direct Mail

Direct mail is a marketing method where businesses send physical promotional materials directly to potential customers' mailboxes.

Direct Mail

Funnel Optimization

Funnel optimization is the process of improving each stage of the customer journey to maximize conversions and drive revenue growth.

Funnel Optimization

Marketing Mix

The marketing mix is the set of marketing tools a company uses to sell products, defined by the 4Ps: Product, Price, Place, and Promotion.

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Awareness Buying Stage

The awareness stage is the first step in the buyer's journey, where a potential customer realizes they have a problem or an opportunity to explore.

Awareness Buying Stage

X-Sell

X-Sell, or cross-selling, is a sales strategy of selling additional, related products or services to an existing customer base.

X-Sell

Predictive Analytics

Predictive analytics uses historical data, statistical algorithms, and machine learning to identify the likelihood of future outcomes.

Predictive Analytics

Marketing Intelligence

Marketing intelligence is gathering and analyzing data about your market, customers, and competitors to inform strategic marketing decisions.

Marketing Intelligence

D2C

Direct-to-consumer (D2C) is a sales strategy where a brand sells its products directly to end customers, bypassing any third-party retailers.

D2C

Serverless Computing

Serverless computing is a cloud model where the provider manages servers, so developers can focus on code without worrying about infrastructure.

Serverless Computing

Sales and Marketing Alignment

Sales and marketing alignment means both teams work in sync, sharing goals and data to boost lead quality, conversions, and company revenue.

Sales and Marketing Alignment

Sales Demo

A sales demo is a presentation where a sales rep shows a prospect how a product or service works and solves their specific problems.

Sales Demo

Regression Analysis

Regression analysis is a statistical method for estimating the relationships between a dependent variable and one or more independent variables.

Regression Analysis

Supply Chain Management

Supply Chain Management oversees the entire production flow of a good or service, from raw materials to final delivery to the consumer.

Supply Chain Management

Lead Routing

Lead routing is the automated process of distributing incoming leads to the right sales reps based on predefined criteria.

Lead Routing

Sales Bundle

A sales bundle groups multiple products or services into a single offering, often at a discounted price to provide greater value to customers.

Sales Bundle

Interactive Voice Response

Interactive Voice Response (IVR) is an automated phone system that uses voice and keypad inputs to interact with callers and route their calls.

Interactive Voice Response

After-Sales Service

After-sales service is the support provided to customers after they've purchased a product. It includes things like warranties, training, or repairs.

After-Sales Service

Mobile Compatibility

Mobile compatibility ensures your site or app works flawlessly on mobile devices, like smartphones and tablets, for a seamless user experience.

Mobile Compatibility

Yield Management

Yield management is a dynamic pricing strategy that adjusts prices based on demand to maximize revenue from a fixed, perishable inventory.

Yield Management

Inbound Sales

Inbound sales attracts interested prospects who've engaged with your brand, letting sales reps connect with warm leads instead of cold outreach.

Inbound Sales

Inside Sales Rep

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Representational State Transfer Application Programming Interface

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Representational State Transfer Application Programming Interface

Kanban

Kanban is a visual project management method that uses a board to visualize workflow, limit work-in-progress, and maximize team efficiency.

Kanban

DevOps

DevOps is a culture and set of practices that merges software development (Dev) and IT operations (Ops) to shorten development cycles.

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Sales Manager

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Demand

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Stress Testing

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Marketing Play

A marketing play is a repeatable tactic used to achieve a specific marketing goal, like generating leads or driving engagement.

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Multi-threading

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Guided Selling

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Buyer’s Remorse

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Buyer’s Remorse

Sales Enablement Content

Sales enablement content refers to the materials and tools that empower your sales team to engage prospects and close deals more efficiently.

Sales Enablement Content

Buyer's Journey

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Buyer's Journey

Sales Dialer

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Sales Dialer

Sales Territory

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Customer Churn Rate

Customer churn rate is the percentage of subscribers or customers who cancel their service with a company during a given time frame.

Customer Churn Rate

Sales Conversion Rate

Sales conversion rate is the percentage of prospects who take a desired action, like making a purchase, turning them into customers.

Sales Conversion Rate

Service Level Agreement

A Service Level Agreement (SLA) is a contract defining the level of service between a provider and a client, including metrics and penalties.

Service Level Agreement

Data Pipelines

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Average Revenue per User

Average Revenue per User (ARPU) is a key performance indicator that calculates the average revenue generated from each user or subscriber.

Average Revenue per User

Product-Led Growth

Product-Led Growth (PLG) is a business strategy where the product itself drives user acquisition, conversion, and expansion.

Product-Led Growth

Consultative Selling

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Consultative Selling

Webhooks

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Webhooks

Sales Territory Planning

Sales territory planning is the process of dividing customers into geographic areas to be assigned to specific sales reps or teams.

Sales Territory Planning

Sales Intelligence

Sales intelligence is technology that gathers and analyzes data to help salespeople find and understand prospects and existing clients.

Sales Intelligence

Closed Won

Closed Won is a CRM status for a sales deal that has been successfully concluded, resulting in a signed contract and a new customer.

Closed Won

AI Sales Script Generator

An AI sales script generator is a tool that uses artificial intelligence to create personalized sales scripts for any outreach scenario.

AI Sales Script Generator

Freemium Models

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Logo Retention

Logo retention is a key B2B metric that measures a company's ability to retain its customers, or 'logos,' over a specific period.

Logo Retention

CCPA Compliance

CCPA compliance is adhering to the California Consumer Privacy Act, a law that grants consumers more control over their personal data.

CCPA Compliance

On Target Earnings

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On Target Earnings

Cold Email

A cold email is an initial outreach sent to a potential customer with whom you've had no prior contact, aiming to introduce your business.

Cold Email

Complex Sale

A complex sale features a long sales cycle, multiple stakeholders, and a high-value transaction, demanding a strategic, consultative approach.

Complex Sale

Net Promoter Score

Net Promoter Score (NPS) is a metric measuring customer loyalty by asking how likely they are to recommend your company or product to others.

Net Promoter Score

Pain Point

A pain point is a specific, recurring problem your target customers face, causing them frustration, inefficiency, or added costs.

Pain Point

Proof of Concept

A Proof of Concept (PoC) is a small exercise to test whether a business idea or project is technically feasible and has real-world potential.

Proof of Concept