Debtor days (DSO)

Definition

Debtor days — also called days sales outstanding, or DSO — measures how long, on average, it takes your customers to settle their invoices. It is calculated as trade debtors divided by annual credit sales, multiplied by 365. A figure of 45 means that, on average, money sits unpaid in your sales ledger for around six and a half weeks after you invoice. It is one of the most direct readings of how efficiently a business converts sales into cash.

In plain terms

Every invoice you send on credit terms is cash you have earned but not yet been handed. Debtor days tells you how long that gap typically lasts. A low number means customers pay promptly and your cash comes in quickly; a high or rising number means you are effectively lending your customers money for free, and funding their slow payment out of your own pocket. Watch the trend as much as the level — debtor days creeping upward is an early signal that collection is slipping or that a few large accounts are stretching their terms.

Why it matters to your business

Debtor days sit at the heart of your working capital. The longer customers take to pay, the more cash is locked in the ledger and unavailable for wages, stock and tax. Reducing debtor days releases that trapped cash without any borrowing at all. Tighter credit control, clear terms, prompt invoicing and chasing on day one rather than day thirty all bring the number down. Where the gap is structural — for instance you pay suppliers in 30 days but customers pay you in 60 — monitoring the figure monthly and bridging the shortfall with a facility such as Credicorp Flex keeps trading smooth.

• High DSO ties up cash you have already earned
• Cutting it releases working capital for nothing
• A rising trend warns of weakening collection

How to bring it down

Start by invoicing the moment work is done, not at month-end — every day's delay adds directly to DSO. State terms clearly on every invoice and make paying easy with a direct payment link. Run a disciplined chase cycle: a polite reminder before the due date, a firmer one on it, and a call shortly after. Consider an early-settlement discount for habitually slow payers, and credit-check new customers before extending terms. Model the cash you would free up with the working capital calculator, and pair the effort with a credit control checklist.