Unpaid invoices are the most expensive money in a small business: you have already done the work and paid the costs, and you are waiting to be paid for it. This calculator shows how many days it really takes customers to pay you, how much cash that ties up, and what collecting faster would be worth.
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How slowly customers pay you, and what the delay costs.
Days sales outstanding
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What faster collection is worth
| If you collect | New DSO | Cash freed once | Interest saved per year |
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What days sales outstanding means
Days sales outstanding, or DSO, is the average number of days between sending an invoice and getting paid. Divide your unpaid invoice balance by monthly revenue and multiply by about 30. If you bill $50,000 a month and $62,000 is outstanding, your DSO is roughly 38 days.
The number on its own means little. The number compared with your payment terms means everything. On Net 30 terms, a DSO of 38 says customers run about a week late, which is ordinary. A DSO of 65 says your terms are decorative.
Days beyond terms = DSO − Your stated terms
Cash tied up = (Days beyond terms ÷ 30.4) × Monthly revenue
Why slow payment costs real money
Every day a customer holds your money, you finance the gap: on a line of credit, on a card, or by not paying yourself. At a 10% borrowing rate, $20,000 stuck in late invoices costs about $2,000 a year in interest. That is pure margin, gone, on work you already delivered.
The second cost is worse and less visible. Invoices get harder to collect as they age. Once a balance passes 90 days the odds of full payment drop sharply, and past a year most small businesses write it off. The over-90 bucket is the one to watch every month.
Seven ways to get paid faster
- Invoice the day the work is done. A week of delay in sending is a week of delay in payment, and it is entirely yours to fix.
- Send a reminder before the due date. A short, friendly note three days early catches the invoices that were simply missed, which is most of them.
- Make paying effortless. A payment link in the invoice beats a bank transfer the customer has to set up. Card fees are almost always cheaper than three extra weeks of waiting.
- Ask for a deposit. Twenty-five to fifty percent up front on larger jobs funds the work and filters out customers who were never going to pay.
- Shorten your terms. Net 15 collects faster than Net 30 for the simple reason that most customers pay relative to the date you gave them.
- Escalate on a schedule. Reminder at day 1 past due, phone call at day 15, stop work at day 30, formal demand at day 60. Written down, it happens. Left to judgment, it does not.
- Check credit on big new accounts. One large customer who does not pay can cost more than a year of small ones who pay slowly.
A discount for early payment, or not
The classic term is 2/10 Net 30: a 2% discount for paying within ten days. Taking 2% off to be paid twenty days sooner works out to an annualized cost of about 37%, far more than your line of credit. It is worth it only when you genuinely need the cash sooner, not as a standing policy.
Frequently asked questions
What is a good DSO for a small business?
Compare it with your own terms rather than an absolute number. Within about five days of your stated terms is healthy, ten to twenty days past is common but worth fixing, and more than twenty days past means your collection process needs work. Businesses paid at the point of sale will see a very low DSO, which is normal.
How do I calculate days sales outstanding?
Divide your total unpaid invoices by monthly revenue billed on terms, then multiply by 30.4. For a quarterly view, divide by quarterly revenue and multiply by 91.
When should I stop working for a customer who has not paid?
Set the line in advance and put it in your terms, commonly 30 days past due on the current invoice. Deciding case by case means you keep extending credit to the customer least likely to pay. Stopping work is also the strongest leverage most small businesses have.
Should I charge late fees?
A stated late fee, typically 1% to 1.5% a month, helps mainly as a signal that you track payment dates. Collecting it matters less than having it in the terms. Check your state's rules on the maximum you can charge.
Is invoice factoring worth it?
Factoring sells your invoices for immediate cash at a discount, usually 1% to 5%, which annualizes to a high rate. It can make sense for a business growing faster than its cash allows, but it is expensive as a permanent fix. Improving collections first is almost always cheaper.
More free small business calculators
See all thirteen on the small business calculators page.
These calculators give planning estimates, not tax, legal, or financial advice. Check important decisions with your accountant or lender.
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