Accounts Receivable Days (DSO)

Days Sales Outstanding (DSO), also called accounts receivable days, measures how quickly your agency gets paid. It's the average number of days between sending an invoice and receiving payment. If your DSO is 45 days, that means on average, you wait a month and a half after invoicing before the money hits your account.

The formula: DSO = (accounts receivable ÷ total revenue) × number of days in the period. If you have $200,000 in outstanding invoices and your monthly revenue is $400,000, your DSO is ($200,000 ÷ $400,000) × 30 = 15 days. That's excellent. If your AR is $600,000 on $400,000 in monthly revenue, your DSO is 45 days — meaning you're carrying 1.5 months of revenue in unpaid invoices.

DSO varies by client type. Corporate clients with formal procurement departments often pay net-45 or net-60, and they'll use every day. Small business clients might pay faster but are more likely to have cash flow issues of their own. Agencies that work with government or education clients can see DSO stretch to 60-90 days because of bureaucratic payment cycles.

DSO directly determines your cash position. An agency with $5M in revenue and a DSO of 30 days has roughly $411,000 tied up in receivables. The same agency at 60 days DSO has $822,000 tied up — that's an additional $411,000 in working capital you need to fund from somewhere (usually a line of credit, which costs money).

Improving DSO is one of the highest-impact things an agency can do for financial health. Tactics include: requiring deposits or upfront payments, offering early payment discounts (2% net-10), sending invoices immediately when work is completed, following up on overdue invoices within 3 days, and putting slow-paying clients on prepay or retainer terms.