Every invoice a business raises is, in effect, a short-term loan: goods delivered, services rendered, and payment deferred. Days Sales Outstanding (DSO) measures how long that loan stays outstanding. On a $100 million annual revenue base, every single day of delay locks roughly $274,000 in receivables on cash the business has already earned.
According to PwC’s Working Capital Study, DSO has increased 6.6% globally over the last five years, leaving more than €1.56 trillion in working capital trapped across businesses worldwide.
The instinctive response to rising DSO is to ask collections teams to chase harder, contact more frequently, and send reminders sooner. But these methods consistently fall short of the ambitions to release trapped capital. Understanding why they fall short, and what actually drives sustainable improvement, requires looking beyond collections.
DSO as a working capital metric
DSO has become a CFO-level metric precisely because finance leaders treat it as a core measure of balance sheet efficiency, with direct implications for liquidity, interest costs, and cash conversion.
Calculated by most as dividing accounts receivable by total revenue and multiplying by the number of days in the period, DSO translates receivables complexity into a single operational number. The direction of travel, whether up or down for DSO, matters more than the absolute figure. DSO rising consistently quarter to quarter is a leading indicator of cash pressure before it surfaces elsewhere on the balance sheet.
The challenge is that owning DSO at a board level does not automatically produce the right operational response. When pressure filters down, the instinct is predictable:
- Ask collections teams to do more
- Send reminders sooner and more frequently
- Chase accounts harder
While that impulse is understandable, it mistakes the symptom for the cause. DSO is not a collections productivity problem. Improving it is a cash performance discipline that requires better prioritization, faster issue resolution, and coordinated execution across the O2C cycle.
The limits of the aging worklist
Most collections operations work from aging-based worklists, ranking accounts by how long invoices have been outstanding. Age tells you when something is overdue, not whether it deserves attention.
The result is misallocated effort: collector time flows toward the loudest accounts rather than those where intervention is most likely to generate cash. Blanket reminders waste capacity on accounts that would have paid anyway and create friction with customers who did not need chasing.
The problem runs deeper still: many invoices sit overdue not because of payment unwillingness, but because of upstream issues that no amount of reminding resolves:
- Unresolved disputes
- Billing errors
- Mismatched purchase orders
Collectors who cannot make that distinction spend time chasing invoices that will not move until the underlying problem is fixed.
Prioritization, disputes, and the levers that move DSO
Sustainable DSO improvement depends on a different approach to prioritization. The levers that make the most difference are:
- Risk- and behavior-based portfolio segmentation
- Payment propensity signals drawn from payment history and behavioral trends
- Next-best action logic to determine the right outreach for each account
- Structured dispute resolution with clear ownership and defined resolution paths
- Payment behavior data to enable earlier intervention
From that foundation, next-best action logic identifies the right channel and message for each account, matched to the customer’s behavior profile. Automated follow-up, operating within policy guardrails, handles routine outreach at scale while freeing collector capacity for more complex or nuanced accounts.
Without clear governance around contact frequency, channel limits, and escalation triggers, automation often just increases the volume of outreach rather than improving the outcomes of collections activities.
Dispute resolution deserves as much attention as outreach volume. An invoice held up by a pricing discrepancy or a mismatched PO will not be paid regardless of how many reminders are sent. Without clear ownership and a defined path, disputes accumulate quietly, holding up cash no collections activity will release until the underlying issue is addressed.
Payment behavior data shifts the focus from reaction to early intervention, enabling teams to act on risk signals before invoices become significantly overdue rather than managing consequences after the payment is stalled.
Better visibility across the O2C cycle enables more coordinated decision-making. None of these shifts require additional headcount. All of them require better data and a more comprehensive way to address how collections activities are executed.
A DSO future defined by connected data and coordinated execution
DSO is an output of the entire O2C process, not just collections. Credit decisions at onboarding, cash application delays, and invoice errors upstream all shape what teams inherit downstream. Connected data across credit, dispute management, cash application, and ERP systems is what transforms isolated interventions into coordinated action.
Finance leaders are already responding to this reality at scale: the 2025 Finance & O2C Transformation Study conducted by Sidetrade and PwC found 64% of firms targeting cash gains of substantial or transformative magnitude from O2C transformation projects, with half expecting results within 12 months.
Platforms built for this discipline, such as Sidetrade’s O2C Intelligence Platform, bring together the predictive intelligence, workflow coordination, and governed automation that make DSO improvement what it should always have been: a connected O2C execution challenge to solve, not a collections headcount problem to throw numbers at.
Sergejs Cuhrajs, Product Marketing Manager at Sidetrade
With more than 10 years of experience in B2B SaaS product marketing, Sergejs specializes in turning complex market and product concepts into clear positioning, actionable frameworks, and compelling narratives.
At Sidetrade, he focuses on how AI can support better decision-making, accelerate operational impact, and help finance leaders balance speed, control, governance, and ROI across the O2C cycle.
FAQ
What is DSO and why does it matter?
DSO measures how long it takes to collect payment after a credit sale. Every additional day represents cash tied up in receivables.
Why doesn't increasing collections activity reduce DSO?
High-volume chasing misallocates collector effort and fails to address disputes, billing errors, and mismatched POs that hold up payment, regardless of reminders sent.
What are the most effective levers for reducing DSO?
Risk-based segmentation, payment propensity signals, next-best action logic, and structured dispute resolution consistently outperform volume-based approaches. These help to focus efforts on highest-impact accounts.
What role does data play in DSO reduction?
Connected data across credit, collections, dispute management, and cash application gives teams the visibility to act earlier and resolve blockers that outreach alone cannot clear.