Days Sales Outstanding (DSO) is a measure of how long it takes, on average, to collect payment after issuing an invoice. If your DSO is 45, it means that on average you wait 45 days to get paid after billing a client. If it's 15, you're collecting in half the time.
DSO is one of the most direct indicators of the health of your accounts receivable process. A high DSO means cash is tied up in unpaid invoices — limiting your ability to pay suppliers, invest in growth, or simply maintain a comfortable working capital buffer. Reducing it is one of the most impactful things you can do for your business's financial health, without changing what you charge or how much you sell.
How to calculate DSO
The standard DSO formula is:
DSO = (Accounts Receivable ÷ Total Credit Sales) × Number of Days
For example: if you had £180,000 in outstanding receivables at month-end and £240,000 in credit sales over the past 90 days:
DSO = (180,000 ÷ 240,000) × 90 = 67.5 days
As a benchmark: a DSO under 30 is excellent, 30–45 is good, 45–60 is average, and above 60 warrants immediate attention.
Step 1: Invoice immediately
This sounds obvious, but it's the single most impactful change many businesses can make. Every day between completing work and sending the invoice is a day added to your DSO before the clock even starts. If you typically send invoices 5–7 days after job completion, you've already given yourself a week-long DSO penalty.
The fix: invoice the same day work is delivered. With online invoicing software, this takes two minutes. The invoice is created from a template, the client receives an email with a payment link, and the clock starts immediately.
Step 2: Make it easy to pay
A significant portion of slow payments aren't deliberate — they're the result of friction. The client received the PDF, intended to pay, and then forgot about it because making a bank transfer requires effort.
Online payment portals eliminate this friction. When paying is as simple as clicking a link and entering a card number, clients pay faster. Data from payment platform providers consistently shows that invoices with online payment options are settled 8–14 days faster on average than invoices requiring manual bank transfers.
Enable card payments, ACH, and digital wallets. Remove every barrier between your client and paying you.
Step 3: Set clear, shorter payment terms
Many businesses default to Net 30 because it feels standard. But Net 30 is a choice, not a law. Evaluate your client relationships and ask: does this client actually need 30 days, or have we just never questioned it?
Consider shortening terms to Net 14 for smaller jobs or for clients with good payment history. Some businesses offer an early payment discount (e.g. 1–2% if paid within 7 days) — this can be cost-effective if your cost of capital or the opportunity cost of late payment is high.
Also: make sure your terms are explicit. "Net 30" is fine; "30 days from invoice date" is better; "Payment due by [specific date]" is best.
Step 4: Automate your reminder sequence
Manual follow-up is inconsistent. Someone gets busy, reminders don't go out on time, and the client interprets silence as flexibility. An automated reminder sequence solves this with zero ongoing effort:
- T-3 days: "Your invoice is due in 3 days — pay now [link]"
- T+0 (due date, if unpaid): "Your payment is due today"
- T+7: "Your invoice is 7 days overdue — please arrange payment"
- T+14: Escalation email or internal alert to account manager
Consistent, on-time follow-up is one of the strongest signals you can send about your payment expectations. Clients learn quickly which suppliers follow up and which don't.
Step 5: Review and segment your aging report weekly
An aging report categorises your outstanding invoices by how overdue they are: current, 1–30 days, 31–60 days, 61–90 days, and 90+ days. Reviewing it weekly — not monthly — means you catch slow-paying accounts early, before a 30-day overdue becomes a 90-day write-off risk.
For accounts in the 31–60 day bucket, a personal call from an account manager often resolves payment faster than any email. For accounts approaching 90 days, involve your finance lead and consider pausing further work until the balance is cleared.
Putting it together
None of these steps is complicated. The challenge is consistency — doing all five, on every invoice, every month. That's exactly what AR automation is designed to ensure: processes that run correctly by default, without relying on someone to remember to follow up.
Businesses that implement all five steps typically see DSO reductions of 15–25 days within two to three billing cycles. That's not a small number — for a business with £200,000 in annual revenue, reducing DSO by 20 days can free up £10,000–15,000 in working capital that was previously tied up in unpaid invoices.