Why DSO Matters
Every day a customer owes you money is a day you're financing their business instead of yours. DSO tells you how many days, on average, your cash is tied up waiting for customers to pay.
A business with $50,000 in monthly revenue and 45-day DSO has $75,000 tied up in receivables. At 30-day DSO, that drops to $50,000—freeing up $25,000 in cash.
Industry Benchmarks
According to the PYMNTS B2B Payments Report, the median DSO for U.S. businesses is 56 days, though this varies significantly by industry. Construction and professional services tend to run higher (45-75 days), while retail runs lower (15-30 days).
- Excellent: Under 30 days
- Good: 30-45 days
- Concerning: 45-60 days
- Critical: Over 60 days
How to Reduce DSO
- Invoice immediately — Don't wait until end of week or month
- Offer early payment discounts — 2% discount for payment in 10 days (2/10 Net 30)
- Follow up consistently — Call on day 31, not day 60
- Require deposits — Get cash before you start, not after you finish
- Fire slow payers — Some customers cost more than they're worth
The Hidden Cost of Slow Payment
If you're paying 8% on a line of credit to cover cash shortfalls caused by slow-paying customers, that's real money. On $75,000 in excess AR, that's $6,000 per year in interest—money that should be profit.
Sources
- PYMNTS B2B Payments Studies — Payment timing research and DSO benchmarks
- Investopedia: Days Sales Outstanding — DSO calculation methodology
- CFO Magazine — Working capital management insights
- Federal Reserve Economic Research — Credit and payment terms research