Days sales outstanding (DSO)

Days sales outstanding (DSO) measures the average time between invoicing customers and receiving their payment. Calculated as: (Accounts receivable / Total credit sales) × number of days in period. For example, $50,000 average AR on $1,000,000 annual credit sales = 18.25 day DSO.

DSO directly affects working capital. Lower DSO means faster cash flow, less working capital tied up in unpaid invoices, and less risk of customer non-payment. For residential service operations, healthy DSO is typically 7-21 days. Commercial service operations often run higher (30-60 days) because commercial customers have longer payment cycles. Operations with 60+ day DSO have significant cash flow constraints that limit growth and operational flexibility.

For service operators, DSO improvement primarily comes from upstream practices: card-on-file for recurring customers (collect at completion, not weeks later), payment-link invoicing (one-tap pay vs check-by-mail), invoice generation from work order on completion (not days later), upfront deposits on large jobs, automated reminder cadence for unpaid invoices. Each day of DSO improvement on a $1M business releases roughly $2,700 of working capital — meaningful for cash-constrained operations.