Days sales outstanding

A ratio compares two figures to reveal something neither number shows on its own. Days sales outstanding compares how much a company is owed by its customers against how quickly it collects that cash, showing how long payment takes after a sale is made.

Days sales outstanding measures, on average, how many days it takes a company to collect payment after making a sale on credit. It divides accounts receivable by revenue, then multiplies by the number of days in the period.

The formula is:

A rising days sales outstanding can be an early warning sign that customers are taking longer to pay, or that a company is loosening its credit terms to win more sales, either of which is worth investigating further since it can eventually show up as cash flow pressure even while reported revenue still looks healthy.