Work out how long your money actually takes to arrive

What DSO tells you and what it hides

Days sales outstanding is the average number of days between invoicing and getting paid. The standard calculation is accounts receivable divided by total credit sales, multiplied by the number of days in the period.

It is a useful number and a misleading one. A DSO of 45 does not mean your customers pay on day 45 — it usually means most pay near terms and a small group pay very late, and the average smears the two together. Two businesses with identical DSO can have completely different problems: one has terms that are too generous, the other has three customers who need chasing.

So calculate it, then immediately look at the distribution behind it. The number tells you whether you have a problem; only the aging tells you what it is.

What a day is worth

Every day of DSO is a day your own money is funding someone else's business. For a service business turning over $600,000 a year, one day of DSO is roughly $1,600 permanently tied up — not once, but continuously, because the gap never closes on its own.

That framing is what makes chasing worth doing. Cutting DSO from 45 days to 38 on that revenue frees around $11,000 of working capital, which is real money that does not require selling anything new.

The cheapest way to reduce it

Not tighter terms, and not discounts for early payment — both cost you margin and both are hard to enforce with a customer you want to keep. The cheapest lever is consistency: invoices that go out the day the work finishes, and a reminder that goes out on a schedule rather than when someone remembers.

Most late payment is not refusal. It is an invoice sitting in an inbox belonging to someone who was going to deal with it and then did not.