The formula for calculating days sales outstanding or DSO is as follows:
(Average Accounts Receivables ÷ Net Credit Sales) * Number of Days) = DSO
DSO measures the number of days it takes to convert sales made on credit to cash. Companies use this metric to measure collection efficiency and help forecast cash flows.
Net Credit Sales refers to all sales made on credit minus returns and allowances. The number of days refers to the time period measured.
What’s the Average DSO per Industry?
DSO varies per industry and could vary depending on the economic conditions. DSO levels have been steadily deteriorating since 2019 due to payment delays. You can benchmark your DSO against peers to evaluate payment collection efficiency.
Here is the average DSO for the following industries:
|Chemicals and Allied Products||38.5|
|Construction-Special Trade Contractors||51.46|
|Consumer Goods – Furniture and Fixtures||36.1|
|Petroleum Refining and Related Industries||23.67|
|Industrial and Commercial Machinery and Computer Equipment||39.4|
|Stone, Clay, Glass, and Concrete Products||36.4|
|Electronic & Other Electrical Equipment & Components||43.44|
|Wholesale Trade – Durable Goods||42.06|
|Wholesale Trade – Nondurable Goods||52.2|
|Printing, Publishing, and Allied Industries||44.3|
How to Lower DSO?
Companies selling on credit aim to lower DSO because they get paid faster. Here are some tips to make your collection strategies more effective:
- Produce reliable and timely accounts receivable information
- Impose stricter credit requirements for new clients
- Enable more payment options
- Ask buyers for a deposit, down payment, or guarantee
Using a platform like Apruve to automate trade credit and accounts receivable processes helps decrease DSO.