Glossary
Days sales outstanding
Also called: DSO · average collection period
Days sales outstanding is how many days of revenue you are carrying unpaid at any moment — outstanding receivables divided by average daily revenue.
A contractor doing $1.2M a year with $180,000 outstanding is carrying roughly 55 days. The figure surprises people because it includes everything: the invoice sent yesterday, the one disputed since March, and retainage nobody expects until closeout. Owners think of the recent ones and forget the tail, which is where most of the money is.
Compare it against your own stated terms rather than against an industry average. If you sell on 30-day terms and your DSO is 55, the 25-day gap is the problem regardless of what anyone else runs. It is also worth calculating with and without retainage, because one reflects a collection failure and the other does not.
Why it matters to a contractor
Money you are owed is money you have already spent — on materials, wages and fuel. Every day it sits unpaid is a day you financed someone else’s business, and the older an invoice gets the less likely it is ever collected.
Work it out on your numbers
See also