What is days sales outstanding (dso)?

Days sales outstanding (DSO) or days sales outstanding formula is a financial metric that measures the average number of days it takes for a company to collect payment from its customers after a sale has been made. It is also referred to as days sales outstanding or simply as receivables days.

Days sales outstanding is commonly used to assess the effectiveness of a company’s credit and collection policies and to evaluate the efficiency of its accounts receivable management. It provides insights into how quickly a company is able to convert its sales into cash.

To calculate DSO, you can use the following formula:

DSO = (Accounts Receivable / Total Credit Sales) * Number of Days

Where:

• Accounts Receivable: The total amount of money owed to the company by its customers.
• Total Credit Sales: The total value of sales made on credit during a specific period.
• Number of Days: The time period over which the days sales outstanding is being calculated (e.g., a month, a quarter, or a year).

For example, if a company has $100,000 in accounts receivable, $500,000 in total credit sales, and you are calculating days sales outstanding for a month (30 days), the calculation would be as follows:

DSO = ($100,000 / $500,000) * 30 = 6 days

This means that, on average, it takes the company approximately 6 days to collect payment from its customers after making a sale. Try our days sales outstanding calculator.

Days sales outstanding is often compared to the company’s credit terms and industry benchmarks to assess its collection efficiency. A lower number of days indicates faster collections and better cash flow management, while a higher number of days suggests slower collections and potential cash flow issues.