1. What is Days Sales Outstanding?

Days Sales Outstanding (DSO) is a financial metric that measures the average number of days it takes a company to collect payment after a sale has been made. It indicates the efficiency of a company's accounts receivable management.

2. How Does the Calculator Work?

The calculator uses the DSO formula:

Where:

• Accounts Receivable — Total outstanding customer invoices
• Net Credit Sales — Total sales made on credit (minus returns/allowances)
• Number of Days — Time period being analyzed (typically 30, 60, or 90 days)

Explanation: The formula shows what percentage of credit sales is still outstanding, then converts it to days.

3. Importance of DSO Calculation

Details: DSO is crucial for assessing a company's cash flow and collection efficiency. Lower DSO indicates faster collection, while higher DSO may signal collection problems.

4. Using the Calculator

Tips: Enter accounts receivable and net credit sales in the same currency. The number of days is typically 30 for monthly analysis, 90 for quarterly, or 365 for annual.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DSO value?
A: Ideal DSO varies by industry, but generally lower is better. Compare with industry averages and your payment terms.

Q2: How often should DSO be calculated?
A: Most companies track DSO monthly to monitor trends and identify collection issues early.

Q3: What if my company has seasonal sales?
A: Use rolling averages or compare with the same period in previous years for more accurate analysis.

Q4: Can DSO be too low?
A: Extremely low DSO might indicate overly strict credit policies that could be limiting sales growth.

Q5: How can I improve my DSO?
A: Strategies include offering early payment discounts, improving invoicing processes, and tightening credit policies.