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 amount of money owed to the company
• 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 calculates how many days' worth of sales are tied up in accounts receivable.

3. Importance of DSO Calculation

Details: DSO is crucial for understanding cash flow, assessing credit policies, and comparing collection efficiency with industry standards. Lower DSO generally indicates faster collection.

4. Using the Calculator

Tips: Enter accounts receivable and net credit sales in dollars, and the number of days in the period. All values must be positive (sales must be greater than zero).

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 company's historical data.

Q2: Should I use annual or quarterly data?
A: You can use either, but ensure the time periods match (e.g., quarterly AR with quarterly sales). Monthly analysis is common.

Q3: How can I improve my DSO?
A: Strategies include offering early payment discounts, tightening credit policies, improving invoicing processes, and following up on overdue accounts.

Q4: What if my company has seasonal sales?
A: Consider calculating DSO for each season separately or using a rolling average to account for seasonality.

Q5: What's the difference between DSO and accounts receivable turnover?
A: Both measure collection efficiency, but DSO expresses it in days while AR turnover shows how many times receivables are collected per period.