Days Sales Outstanding (DSO) is calculated by dividing accounts receivable by total credit sales, then multiplying by the number of days in the period. A lower DSO indicates faster collections and better cash flow management.

Example: A company has $150,000 in accounts receivable and made $900,000 in credit sales over 90 days. The DSO is (150,000 / 900,000) x 90 = 15 days, meaning it takes an average of 15 days to collect payment.