Days Sales Outstanding (DSO) vs Days Inventory Outstanding (DIO)
DSO and DIO are two components of the Cash Conversion Cycle (CCC = DIO + DSO − DPO). DSO measures how long it takes to collect cash from customers; DIO measures how long inventory sits before being sold. Reducing either shortens the CCC and improves working capital.
At a Glance
Days Sales Outstanding (DSO)
Average days to collect payment after a sale
Days Inventory Outstanding (DIO)
Average days inventory is held before sale
Key Differences
- DSO measures the receivables cycle; DIO measures the inventory cycle.
- Both are denominated in days, allowing easy comparison and CCC calculation.
- Service businesses have near-zero DIO but may have significant DSO.
- Manufacturing companies typically need to optimise both metrics simultaneously.
When to Use Each
Use Days Sales Outstanding (DSO) when…
Use DSO to evaluate accounts receivable management and credit policy. A rising DSO signals collection problems or overly generous payment terms.
Full Days Sales Outstanding guide →Use Days Inventory Outstanding (DIO) when…
Use DIO to assess inventory management and supply chain efficiency. High DIO ties up working capital and risks obsolescence.
Full Days Inventory Outstanding guide →Formulas
DAYS SALES OUTSTANDING (DSO)
DSO = (Accounts Receivable / Revenue) × 365
Accounts Receivable / (Revenue / 365)DAYS INVENTORY OUTSTANDING (DIO)
DIO = (Average Inventory / Cost of Goods Sold) × 365
365 / Inventory Turnover RatioCharts
Days Sales Outstanding (DSO)
Days Inventory Outstanding (DIO)