How to Reduce DSO (Days Sales Outstanding) in 2026

Days Sales Outstanding (DSO) measures the average number of days between issuing an invoice and collecting payment. Calculate it as (Accounts Receivable ÷ Total Credit Sales) × Number of Days. Most B2B companies have between $200,000 and $2 million trapped in overdue invoices. Reducing DSO from 60 days to 30 days can free up hundreds of thousands in working capital without taking on expensive credit lines.

In my experience analyzing B2B finance operations across hundreds of implementations, companies that move from manual collections to intelligent automation typically reduce DSO by 30-40% within 90 days. This guide walks through the six proven strategies that consistently deliver those results.

What DSO Should You Target for Your Industry?

DSO benchmarks vary significantly by industry and customer segment. Here's what strong performance looks like in 2026 based on current market data:

SMB SaaS companies typically operate at 45-60 days without automation. With intelligent collections systems and payment portals, this drops to under 30 days. The subscription model inherently supports faster collection, but only when paired with automated dunning workflows that systematically follow up on failed payments.

Mid-market professional services firms average 60-90 days due to project-based billing cycles and manual approval processes that customers use internally. Automated follow-up sequences and self-service payment portals can push this below 45 days by eliminating the friction of manual payment initiation.

Enterprise companies with long contractual payment terms often experience 90-120 days. Even with Net-60 or Net-90 terms written into contracts, you can reduce actual collection time to under 60 days by streamlining dispute resolution workflows and payment reconciliation processes.

These targets assume modern AR automation is in place. If you're managing collections through spreadsheets and manual email reminders, you're likely at the high end of these ranges or significantly beyond them.

Why Is Your DSO Higher Than It Should Be?

After analyzing collections data from hundreds of B2B companies, I've found that slow payment consistently falls into six categories. Most companies struggle with three or four of these simultaneously.

Invoicing errors delay everything. Wrong purchase order numbers, mismatched line items, or invoices generated days after service delivery give customers a legitimate reason to postpone payment. Our analysis shows invoices with even minor errors take 18-25 days longer to collect on average. A single typo in a PO number can trigger a complete payment halt while the customer's AP department requests corrections.

No systematic follow-up means money left on the table. When you rely on individual team members to remember when to send reminders, you're losing cash. Companies without automated dunning workflows typically let 30-40% of invoices age past terms before sending the first reminder. By that point, your invoice has already fallen to the bottom of the customer's payment priority list.

Limited payment options create unnecessary friction. Requiring customers to mail checks or initiate bank transfers in 2026 adds days to your collection cycle. Companies offering multiple payment methods (ACH, credit card, instant bank transfer) collect 15-20% faster than those offering only one option. Every additional step between "customer decides to pay" and "payment completed" increases abandonment.

Untracked disputes create bottlenecks. A single unresolved dispute over a $500 line item can hold up a $50,000 invoice for weeks. Without a system to log, assign, and track dispute resolution to completion, these issues disappear into email threads between your finance team and the customer's AP department. No one owns the resolution, so it never happens.

Disconnected systems create reconciliation nightmares. When your billing system, payment processor, ERP, and CRM exist in separate silos, your finance team spends hours matching payments to invoices instead of collecting on aging receivables. I've seen finance teams spend 40% of their time on reconciliation tasks that should be automated.

Slow reconciliation hides collection problems. If it takes your team three days to reconcile payments and update invoice status, you're working with stale data when prioritizing collection activities. You might be following up on invoices that were already paid yesterday, damaging customer relationships while failing to pursue actually overdue accounts.

‍