How does an increase in days of sales outstanding affect a company's liquidity according to the text?

An increase in days of sales outstanding (DSO) negatively affects a company's liquidity by indicating that it takes longer to collect receivables. This delay in cash collection can lead to cash flow issues, making it harder for the company to meet its short-term obligations.

As days of sales outstanding increase, it signifies that the company is experiencing longer collection periods for its accounts receivable. This situation can strain liquidity since cash inflows are delayed, potentially hindering the company's ability to cover its immediate liabilities. A specific example from the text illustrates that an increase in DSO from 23 days to 28 days over a period was noted as a negative factor for liquidity.