Day Sales Outstanding or DSO is the average time duration in days to receive a payment after a sale is concluded to the customer.
In view of the Time Value of Money, it is preliminary that a business enterprise keeps the DSO value very minimum as time lost in receiving payment is money lost, even if the payment is received sooner or later.
Maintaining a lower DSO is more important for small to medium enterprises in comparison with large and diversified businesses. DSO pertains more towards credit sales and not cash sales.
DSO is a primary indicator of gauging the credit worthiness of customers. Watching trends in customer-specific DSO is an important part of credit management activity in Accounts Receivables.