How DSO is calculated
DSO = (Accounts receivable ÷ Credit sales in the period) × Days in the period
Example: $85,000 in receivables and $240,000 of credit sales over 90 days gives (85,000 ÷ 240,000) × 90 ≈ 31.9 days.
How to read your result
Compare DSO with your payment terms. If you invoice on Net 30 and your DSO is 45, clients pay about two weeks late on average. DSO is an average: a few very late invoices can hide behind many on-time ones, so also look at your oldest invoices.
Why DSO matters for agencies and consultancies
Service firms pay salaries every month regardless of when clients pay. Retainer and milestone invoices that slip a few weeks can create a cash gap even when the business is profitable.
Ways to reduce DSO
- Invoice promptly when work or a milestone is delivered.
- Remind clients before the due date, not only after.
- Record promises to pay and follow up when a date passes.
- Resolve disputed invoices quickly instead of sending more reminders.
Also try the late payment cost calculator.