Definition
Receivable Days (DSO)
Receivable days, or days sales outstanding, measure the average number of days a company takes to collect payment from its customers after a sale.
Calculated as average trade receivables divided by revenue, times 365, receivable days show how long cash is locked up in credit sales. Lower is better, signalling efficient collections and reduced risk of bad debts.
Rising receivable days can indicate aggressive sales on loose credit terms, customer financial stress, or even channel-stuffing to inflate revenue. Analysts watch the trend closely because lengthening receivables drain operating cash flow even when reported sales look healthy.
Related terms
- Cash Conversion CycleThe cash conversion cycle measures how many days it takes a company to turn investments in inventory and receivables back into cash.
- Inventory Turnover RatioThe inventory turnover ratio measures how many times a company sells and replaces its inventory over a period, indicating how efficiently stock is managed.
- Working Capital CycleThe working capital cycle is the time it takes a company to convert its investment in inventory and receivables back into cash, net of payables.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.