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.
OTHER TERMS BEGINNING WITH "D"
- Debt Advisor (U.S)
- Debt Consolidation
- Debt Covenant
- Debt Equity Ratio (D/E ratio)
- Debt Financing
- Debt Service Coverage Ratio (DSCR)
- Debt to Assets Ratio
- Debt to Income Ratio (DTI)
- Debt Yield
- Debt-to-Income (DTI) Ratio
- Debtor
- Debtor Finance
- Debtor Report
- Debtor-in-Possession (DIP)
- Debtor-in-Possession Financing
- Deductions
- Deed of Company Arrangement (DOCA)
- Demand Line of Credit
- Deposit Account Control Agreement (DACA)
- Depreciation
- Depreciation & Amortization
- Dilution
- Dilution of Receivables
- Dilutive Financing
- Directional Boring Financing
- Discount
- Distress Cost
- Divestment
- Documentation Fee
- Double Brokering
- Dry Van
- Due Diligence
- Dynamic Discounting