DSO can be calculated using the following formula:
Days sales outstanding = Average accounts receivable/total credit sales * days in the time period
Suppose that you’re measuring DSO for the month of April. During the month, your business had average accounts receivable of $18,000 and total credit sales of $20,000. Because April is a 30-day month, here’s how this breaks down:
27 = ($18,000/$20,000) * 30
A DSO of 27 means that your company takes an average of 27 days to receive payment for the goods and services it provides. The average DSO varies widely by industry.