DSO measures how long customers take to pay: a DSO of 34 means the average customer settles their bill 34 days after the sale. Lower is better, because cash collected quickly is cash back at work, and every day a bill stays unpaid carries the risk it never gets paid at all. The level depends on who the customers are: businesses selling straight to consumers sit near 0 to 10 days, since people pay at the till; businesses selling to other businesses run 30 to 60 days, because that world works on invoices; enterprise software and project work stretch to 90 or beyond. When a company serves both kinds, its DSO is a blend: a software firm charging individuals by card while invoicing corporations can average 34 days without a single customer actually paying in 34 days. So before judging the number, know roughly where the revenue comes from.
The warning sign is a rising DSO with no change in the customer mix: buyers are stretching payments or struggling to pay. A sharper check lives in the notes to the financial statements, the detailed pages after the balance sheet. Look for the receivables note, where companies disclose how much of their accounts receivable they expect never to collect, and sometimes how overdue the bills are. A growing allowance for uncollected bills, or a swelling overdue pile, signals collection trouble even when the overall DSO looks fine.
For businesses that hold no inventory, such as software, services, and banks, this is the single most useful working-capital number. As with the other turnover metrics, the accounts-receivable figure used is the period average, so it lines up with the sales.