Days sales outstanding (DSO)

Definition

The average days a business waits to be paid after invoicing.

Why It Matters

Roughly, it is accounts receivable divided by revenue times the days in the period, a measure of how much cash is tied up in unpaid invoices. It sizes the working capital a business needs to run. The longer the DSO, the more cash sits in receivables you have to fund. So a rising DSO or a book of slow-paying clients belongs in diligence before the margins do.

In numbers: A business with $1.2M of receivables on $7.3M of revenue runs a DSO near 60 days ($1.2M / $7.3M times 365); every extra week of DSO ties up roughly $140k more cash, which is real money at a searcher's scale.