What does a high Days Sales Outstanding indicate?

A high Days Sales Outstanding (DSO) indicates a long delay in the collection of receivables, meaning that it takes the company longer to collect payment from its customers after a sale has been made. This metric is crucial for assessing the effectiveness of a company's credit policies and collection efforts. When DSO is high, it suggests that customers may be taking more time to pay their invoices, which could lead to cash flow issues for the business.

In contrast, lower DSO values are typically viewed as favorable, as they indicate that payments are being collected more quickly, contributing positively to the cash flow. This measure serves as an important indicator for businesses to analyze their accounts receivable and ensure they are managing their credit risk and collection processes effectively.