Receivable Days (DSO)

How long until the cash actually arrives

When a company sells on credit, the sale shows up as revenue immediately, but the cash arrives only later. Receivable Days, also called DSO (Days Sales Outstanding), measures that lag: on average, how many days does it take to collect payment after billing a customer? The formula is (Accounts Receivable ÷ Revenue) × 365.

A DSO of 45 means the company waits about a month and a half to get paid. Lower is generally better, it means cash comes in faster, freeing up working capital and reducing the need to borrow.

Why it matters for working capital

DSO is a core part of the cash conversion cycle, alongside inventory days and payable days. A business with high receivable days has its money locked up in customers' hands, which strains liquidity even when sales and profits look healthy. Many profitable Indian companies have run into trouble not from losses but from a working-capital crunch, growing fast while customers paid ever more slowly.

It is especially critical for B2B businesses, capital goods, infrastructure, EPC contractors and companies selling to government, where payment delays of several months are common and DSO can balloon.

Reading the trend

The most telling signal is the direction over time. Rising receivable days can mean weakening bargaining power, looser credit terms offered to push sales, or customers in financial stress, and sometimes hints at revenue being booked aggressively without real collection behind it. A sudden jump in DSO is a classic red flag analysts hunt for.

For Indian investors, comparing a company's DSO with its sector peers and tracking its trend reveals the quality behind reported sales. A company that grows revenue while keeping DSO stable or falling is converting sales into real cash, the mark of a healthy business. One whose receivables swell faster than sales may be buying growth with credit it will struggle to collect, a warning that profits on paper aren't reaching the bank.