Days sales outstanding calculator for contractors
Days sales outstanding (DSO) is how long, on average, it takes you to get paid after invoicing. Divide accounts receivable by your average revenue per day. A contractor at 45 days who gets to 30 frees up 15 days of revenue as cash. Pull the three numbers from your QuickBooks reports.
On this page
Days sales outstanding45 days
- Cash freed at your target
- $60,000
- Days over target
- 15 days
- Share of receivables past due
- 40%
- Average revenue per day
- $4,000
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How DSO is calculated
- Average revenue per day = invoiced revenue in the period / days in the period.
- Days sales outstanding = accounts receivable / average revenue per day.
- Cash freed at your target = (DSO minus target days) x average revenue per day.
Use invoiced revenue, not deposits collected, and the receivables total from the same date the period ends.
Where to find the numbers in QuickBooks
| Input | Report |
|---|---|
| Invoiced revenue | Profit and loss for the period, income total |
| Accounts receivable | A/R aging summary, total |
| Past due | A/R aging summary, every column after current |
Insurance work and commercial jobs on net terms run longer than residential service paid at the door, so compare your number with your own past quarters and not with another company.
Bringing the number down
- Invoice the day the job closes. Days between finishing and invoicing count against you.
- Put a payment link on every invoice.
- Follow up on a schedule. Day 1, 7, 14 and 30, stopping on payment or reply.
- Escalate the old and the large. The owner calls at 30 days.
Alvin can read the aging report each morning, draft the reminder each overdue invoice is due for and hold it for approval, and list the invoices that have not gone out for finished jobs. Wording is in the payment reminder templates, or build one with the payment reminder generator.
Frequently asked questions
What is a good DSO for a contractor?
It depends on the work. Residential service collected at the door can run near zero, while insurance and commercial work on net terms runs much longer. Track your own number each quarter and work on the trend.
How do I calculate days sales outstanding?
Divide accounts receivable by average daily revenue. With the example numbers above, $180,000 of receivables against $4,000 of revenue per day is 45 days.
What is the difference between DSO and A/R aging?
DSO is one number for the whole company. The aging report shows which invoices make it up, grouped by how late they are, and is the list you work from to collect.
The math is the easy part. Alvin does the office work after it.
Alvin is the personal assistant for home services businesses. Your team asks in the app or forwards an email, and Alvin does the work across QuickBooks, your CRM and your suppliers. Anything that spends money or goes to a customer waits for your approval.