Days Sales Outstanding (DSO)
The average number of days it takes to collect payment after invoicing.
Formula
Accounts receivable ÷ Revenue invoiced in period × Days in period
Why Track It
Cash pays technicians, not revenue. A rising DSO means the MSP is financing its clients and will feel it in payroll before the income statement shows a problem.
How It Is Measured
Take accounts receivable at period end, divide by total credit revenue invoiced in the period, and multiply by the days in the period. Use the accounting system's AR aging. Report AR over 60 days separately, by client, since one slow payer can hide in the average.
Constraints
Payment terms drive it: Net 15 and Net 30 MSPs are not comparable. Auto-pay on recurring agreements pushes it down while project invoices can still be very late.
Measurement Note
Flexpoint rates under 20 days excellent, 20 to 30 healthy, 30 to 45 room to improve, 45 to 60 a collections process needing attention and 60 or more significant cash flow pressure. It also says there is no universal benchmark because payment terms vary, so compare against your own terms.
Referenced In
Related KPIs
- Adjusted EBITDA MarginEarnings before interest, taxes, depreciation and amortization, adjusted for one-time and owner-specific items, as a percentage of revenue.
- Monthly Recurring Revenue (MRR)The total revenue billed each month under recurring agreements, such as managed services, security and cloud subscriptions.
Glossary and Answers
More in Finance
The recurring revenue base, the margins it earns and how quickly cash comes in. These numbers tell an MSP owner whether the business is priced right and worth what a buyer would pay for it.
- Adjusted EBITDA MarginOwner
- All-In Seat Price (AISP)Owner
- Effective Hourly RateFinance Lead
- Gross MarginFinance Lead
- Managed Services Gross MarginFinance Lead
- Monthly Recurring Revenue (MRR)Owner
- Recurring Revenue as Share of TotalOwner