Days Sales Outstanding (DSO) is an ecommerce KPI and metric that measures the average number of days it takes for a business to collect payment after making a sale. It is calculated by dividing accounts receivable by total credit sales and multiplying by the number of days in the period. A lower DSO indicates that a business is collecting payments quickly, while a higher DSO suggests potential issues with collections or delayed payments.
For ecommerce businesses, optimizing DSO is essential for maintaining healthy cash flow. A high DSO could signal that customers are not paying promptly, leading to cash flow shortages and possibly delaying the ability to reinvest in the business. By keeping DSO low, ecommerce businesses can ensure they are collecting payments efficiently, which is crucial for funding daily operations, paying suppliers, and growing the business. To reduce DSO, ecommerce businesses should implement strong credit policies, follow up on overdue invoices, and offer incentives for early payments. This metric is more relevant for businesses selling wholesale.
Read our in-depth article on ecommerce days sales outstanding.
Ecommerce DSP Formula
DSO = (Accounts Receivable / Total Credit Sales) × 365
Days Sales Outstanding is calculated by dividing your accounts receivable by your total credit sales multiplied by 365.