It's the end of the month, and your AR aging report shows many of the same names it showed last month. Invoices that went out on net 30 terms are sitting past 45 and 60 days. Many of those customers will pay eventually, once a general contractor pays them or once someone reminds them the invoice is still open.

Until then, the cash you need for inventory and payroll stays tied up in receivables. Days sales outstanding, or DSO, measures how long that money takes to come in. Tracking it each month shows whether collections are speeding up or slowing down, often before you feel it in your bank balance, and points to the branches or customers that need attention.

Below, we'll walk through how to calculate your own DSO using a distributor example, then look at what pushes it up and what you can do to bring it down.

Key takeaways

• DSO (days sales outstanding) is the average number of days it takes to collect payment after a sale on credit.

• DSO = (accounts receivable ÷ credit sales) × number of days in the period.

• Large public construction supply distributors run about 40 to 63 days. HARDI reports HVACR distributors under 37 days.

• The biggest levers are letting customers pay invoices online and sending reminders before invoices go past due.

What is DSO?

DSO (days sales outstanding) is the average number of days it takes a business to collect payment after making a sale on credit.

DSO is usually compared with your payment terms. A distributor with net 30 terms and a DSO of 55 is waiting, on average, almost a month past the due date to get paid.

Distributors we work with at Dill, a credit and accounts receivable platform for construction suppliers, describe the same pattern before moving their customers to Dill's online payment portal. Electric Supply, an electrical wholesaler in Phoenix and Tucson, had its controller stepping into collections on accounts 45 to 90 days past due. Applied Equipment Solutions was waiting 7 to 10 days just for mailed checks to arrive.

To see where your own business stands, start with the DSO formula.

The DSO formula

The standard DSO formula divides your accounts receivable by your credit sales for a period, then multiplies by the number of days in that period.

DSO = (accounts receivable at end of period ÷ credit sales for the period) × days in the period

A few notes on the inputs:

• Accounts receivable: the total your customers owe you at the end of the period, from your AR aging report.

• Credit sales: sales made on account. Leave out cash, COD, and counter sales paid at pickup, since those never become receivables. If your ERP can't separate them, use total sales and note that your DSO will read a little low.

• Days in period: 30 for a month, 90 for a quarter, 365 for a year. Use the same period length every time you calculate it.

How to calculate DSO, step by step

To calculate DSO, pull your ending AR balance and your credit sales for the same period from your ERP, divide AR by credit sales, and multiply by the days in the period. Here is the process with a worked example from a hypothetical plumbing distributor.

1. Pick the period. Monthly works best for most distributors because it shows changes quickly.

2. Pull ending AR. Run the AR aging report as of the last day of the month. In the example, customers owe $5.3 million at month-end.

3. Pull credit sales for the month. Total invoiced sales on account, excluding cash and counter sales paid at pickup. In the example, credit sales for the month are $3.4 million.

4. Divide AR by credit sales. $5.3 million ÷ $3.4 million = 1.56.

5. Multiply by the days in the period. For a monthly calculation, use 30 days. 1.56 × 30 = 46.8, so DSO is about 47 days.

6. Compare it to your terms. On net 30 terms, a DSO of 47 means customers are paying late. The best possible DSO section below shows how to measure how late.

What that costs: at $3.4 million in monthly credit sales, each day of DSO holds about $113,000 in receivables ($3.4 million ÷ 30). Bringing DSO down by 10 days would put about $1.1 million back in the bank.

To estimate what shorter DSO would free up for your business, try Dill's Cash Flow Calculator.

Two things to watch when you calculate it:

• Use the same method every time. Switching between monthly and annual calculations, or between total and credit sales, will move the number when nothing has changed.

• Compare a month to the same month last year. Construction supply is seasonal. HARDI, the HVACR distributors' association, notes that June has the shortest DSO of the calendar year for its members, so comparing June to January will mislead you.

What is a good DSO for a distributor?

A good DSO for a distributor is one close to its payment terms. Among large public construction supply distributors, DSO runs from about 40 to 63 days. For HVACR distributors, HARDI reports member DSO below 37 days in both June and July 2026, after running close to 40 days for the month of May from 2021 through 2024.

Keep in mind that HARDI's numbers come from the HVACR distributors who choose to report their monthly data, and coverage varies by region. Distributors who track their numbers closely enough to report them may collect faster than average, so treat the figure as a target to aim for.

DSO at public construction supply distributors

To give plumbing, electrical, and PVF distributors a reference point, we calculated DSO for four public distributors from the figures in their most recent annual reports.

DSO here is year-end accounts receivable (net of allowance) ÷ annual revenue × 365, using each company's Form 10-K. Ferguson changed its fiscal year in 2025, so its row uses the last full 12-month year. These companies are far larger than most distributors, their revenue includes some cash sales, and Wesco's mix includes data center and communications products, so use these as reference points for your own trade.

For plumbing, electrical, and PVF distributors, compare your DSO with your payment terms and with the same month last year.

Measure how late customers pay with best possible DSO

DSO mixes two things: how long your terms are and how late customers pay. To separate them, credit managers use a companion metric called best possible DSO, which counts only receivables that are not yet due.

Best possible DSO = (current, not-yet-due AR ÷ credit sales for the period) × days in the period

Best possible DSO is what your DSO would be if every customer paid exactly on time. The gap between it and your actual DSO is how many days late customers pay on average.

In the plumbing distributor example, $3.1 million of the $5.3 million in AR isn't due yet, which gives a best possible DSO of about 27 days. Actual DSO is 47, so customers pay about 20 days late on average. Those 20 days are what a better AR process can shrink.

Track DSO by branch

A company-wide DSO can hide one branch that is pulling the number up. Run the same calculation for each branch using its own AR and credit sales.

The table is sorted from highest DSO to lowest. In this example, Branch D collects close to terms while Branch A runs 16 days slower. That points to differences in customer mix, how each branch's customers pay, or how consistently each branch follows up, and tells the credit team where to look first.

Why is DSO high in construction supply?

DSO runs high in construction supply because distributors sit at the end of a long payment chain and still collect much of their money by check, phone, and mail. Five causes come up again and again in conversations with the HVAC, plumbing, electrical, and PVF distributors Dill works with.

Customers pay when they get paid

Your customer often waits on a general contractor, who waits on the project owner. Retainage, progress billing, and pay-when-paid clauses push your customer's cash out, and your invoice waits behind it. Your terms say net 30, but your customer's cash cycle may be 60 days or longer.

Contractors are known for paying late, and a lot of that comes from the nature of the industry. The subcontractors and trade contractors buying from construction suppliers are often on projects where they're waiting to get paid by the general contractor, so the supplier ends up at the bottom of the chain.

Sitting at the bottom of the chain means part of your DSO depends on how quickly your customers' customers pay. You have no say in when a general contractor releases payment. The rest of what slows payment is easier to fix.

Checks are still the default

Many customers still mail checks. A check can spend a week or more in the mail, then wait to be deposited and posted to the customer's account. Every day a check spends in the mail is a day added to DSO.

Paying is harder than it should be

When customers have to call in a card, request a copy of an invoice, or wait for business hours, payments slip. Many customers deal with invoices after hours, once they're off the jobsite, and an AR team that only takes payments by phone during business hours misses them.

Invoices get forgotten until someone follows up

A busy customer running several jobs will pay late simply because no one reminded them. A reminder at the right time is often all it takes. After Gorman Industries, an HVAC wholesaler in Albuquerque, started sending automated past due reminders through Dill, its customers often paid within 1 to 2 days of getting one.

Billing disputes surface late

A mismatched PO or a customer who thinks they are on different terms can hold an invoice for weeks. Electric Supply, an electrical wholesaler in Phoenix and Tucson, found that automated reminders brought these discrepancies up early, before the invoice drifted into its 45-to-90-day bucket.

How can distributors lower DSO?

Distributors lower DSO by making it easier for customers to pay and by following up before invoices go past due. Dill's guide on how construction materials distributors can reduce DSO with AR automation covers this in depth. In short:

• Give customers an online payment portal. Let them see every open invoice and pay by ACH or card at any hour, with saved payment methods. Tru-Duct, a sheet metal fabricator in Oceanside, California, gets paid 5 to 20 days earlier since its customers started paying through Dill's portal.

• Automate past due reminders. Reminders that go out on schedule catch forgotten invoices before they age, and free the credit team to work the accounts that are far behind, as Gorman Industries found.

• Replace mailed checks with ACH. Moving check payers to ACH removes the days a check spends in the mail and the days it takes to deposit and post it.

• Apply cash faster. A payment that sits unapplied still shows as open AR. Dill's AI Cash Application matches payments to invoices and learns from your team's corrections.

• Start with complete credit applications. Accounts opened with verified information and clear terms lead to fewer billing disputes later.

Get paid sooner with Dill

Dill works only with construction suppliers. It gives your customers an online portal to see their invoices and pay by ACH or card, sends past due reminders on schedule, runs credit applications for new accounts, and matches payments to invoices so your team isn't keying them in by hand. Dill's team handles the integration with your ERP, including Epicor, Infor, NetSuite, and Sage, and most suppliers are live in 2 to 6 weeks.

The distributors who make this change spend less time chasing invoices and get paid closer to their terms. Request a demo to see your own AR in Dill.

Frequently asked questions about DSO

What does DSO stand for?

DSO stands for days sales outstanding. It is the average number of days a company takes to collect payment after a sale on credit.

What is the formula for DSO?

DSO = (accounts receivable ÷ credit sales) × number of days in the period. Use ending AR and credit sales from the same period.

Is a higher or lower DSO better?

Lower is better. A lower DSO means customers pay sooner and less of your cash is tied up in receivables.

What is a good DSO for a wholesale distributor?

One close to your payment terms. On net 30 terms, a DSO in the 30s or low 40s is healthy. Large public construction supply distributors ran from about 40 to 63 days in their latest fiscal years. HARDI reported HVACR distributor DSO below 37 days in June and July 2026.

How often should a distributor calculate DSO?

Monthly, and compare each month with the same month a year earlier to account for seasonal swings in construction.

What is the difference between DSO and average days delinquent?

DSO measures total collection time, including the days customers are allowed under your terms. Average days delinquent is DSO minus best possible DSO, and measures only the days customers pay late.

Why is DSO higher in construction supply than in other industries?

Customers often wait on general contractors and project owners to be paid, many still pay by mailed check or call in card payments, and disputes over POs or terms can hold invoices for weeks.

Sources

• HARDI, HARDI Distributors Report 6.0% Revenue Increase in June (published August 5, 2026): June has the shortest DSO of the year; June 2026 DSO under 37 days.

• ACHR News, HVACR Distributors See 6.7% July Sales Jump (September 2, 2026): July 2026 DSO under 37 days.

• HARDI, HARDI Distributors Report 2.1% Revenue Decline in May (July 2, 2025): May DSO close to 40 days from 2021 through 2024.

• ABC-Amega, Measure and Manage Collection Efficiency Using DSO: best possible DSO and average days delinquent.

• Dill case studies: Tru-Duct, Gorman Industries, Applied Equipment Solutions, and Electric Supply.

• Form 10-K annual reports (SEC EDGAR): Watsco, fiscal 2025, Ferguson, fiscal year ended July 31, 2025, Core & Main, fiscal year ended February 1, 2026, and Wesco, fiscal 2025. Accounts receivable and revenue values checked against each company's XBRL filing data on October 6, 2026.