It works because revenue-recognition often occurs on shipment to the distributor rather than on sale to the end customer. Offering extended payment terms or discounts at quarter end converts next quarter's demand into this quarter's revenue.
The tell is the combination: revenue beats consensus-estimate, days-sales-outstanding jumps, distributor inventory rises, and the following quarter guides down. Each signal alone is noise; together they are a pattern.
Example: a Northwind rival ships an extra $28M to distributors in the final two weeks of the year on 120-day terms. Revenue beats by 3%, DSO rises nine days, and the next quarter misses by 6%.
Related: revenue-recognition, days-sales-outstanding, earnings-quality, restatement, earnings-beat