An analyst discovers that a company's days sales outstanding (DSO) has increased from 35 days to 55 days over the past two years. What does this trend most likely indicate?

Why D — The company may be experiencing deteriorating credit quality of its customers or loosening its credit terms

An increasing DSO means the company is taking longer to collect payments from its customers, which can indicate deteriorating customer credit quality, more aggressive revenue recognition, or loosened credit terms to boost sales. This is a red flag in due diligence because it may signal that revenue growth is being driven by extending credit to less creditworthy customers, potentially leading to higher bad debt expense in the future.