Days of Sales Outstanding is the average number of days a company takes to collect payment of a sale.
A high DSO number suggests that a company is experiencing delays in receiving payments. That can cause a cash flow problem. A low DSO indicates that the company is getting its payments quickly. That money can be put back into the business to good effect.
It is important to note that DSO can vary from business to business. In the financial industry, relatively long payment terms are common. In the agriculture and fuel industries, fast payment can be crucial. In general, small businesses rely more heavily on steady cash flow than large, diversified companies.