1. What is Days Sales Outstanding (DSO)?

DSO (Days Sales Outstanding) measures the average number of days it takes a company to collect payment after a sale has been made. It's a key metric in assessing a company's accounts receivable efficiency and cash flow.

2. How Does the Calculator Work?

The calculator uses the DSO formula:

Where:

• Average Accounts Receivable — The average amount of money owed to the company during the period
• Net Credit Sales — Total sales made on credit during the period, minus any returns or allowances
• 365 — Number of days in the year (some companies use 360 for simplicity)

Explanation: The formula shows what portion of annual credit sales is tied up in accounts receivable at any given time.

3. Importance of DSO Calculation

Details: DSO is crucial for understanding cash flow efficiency. Lower DSO means faster collection, which improves liquidity. Comparing DSO to industry averages helps assess performance.

4. Using the Calculator

Tips: Enter average accounts receivable and net credit sales in dollars. Both values must be positive numbers. The result shows the average collection period in days.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DSO value?
A: Ideal DSO varies by industry. Generally, lower is better, but it should be compared to payment terms and industry benchmarks.

Q2: How often should DSO be calculated?
A: Most companies calculate DSO monthly to monitor trends in collections efficiency.

Q3: What if net credit sales is zero?
A: DSO becomes undefined if there are no credit sales. The formula only applies when credit sales exist.

Q4: Does DSO include cash sales?
A: No, DSO only considers credit sales. Cash sales are collected immediately (DSO = 0).

Q5: How can companies reduce their DSO?
A: Strategies include offering early payment discounts, tightening credit policies, improving invoicing processes, and following up on overdue accounts.