1. What is Days Sales Outstanding (DSO)?

Definition: DSO measures the average number of days it takes a company to collect payment after a sale has been made.

Purpose: It helps businesses assess their accounts receivable efficiency and cash flow management.

2. How Does the DSO Calculator Work?

The calculator uses the formula:

Where:

• \( DSO \) — Days Sales Outstanding (days)
• \( \text{Accounts Receivable} \) — Outstanding payments owed to the company (currency)
• \( \text{Total Credit Sales} \) — Sales made on credit during the period (currency)
• \( \text{Number of Days} \) — Time period being analyzed (days)

Explanation: The ratio shows what portion of credit sales remains uncollected, multiplied by the number of days in the period.

3. Importance of DSO Calculation

Details: A lower DSO indicates faster collection of receivables, which improves cash flow. Comparing DSO to industry benchmarks helps evaluate performance.

4. Using the Calculator

Tips: Enter accounts receivable amount, total credit sales for the period, and number of days in the period (default 30). All values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What's a good DSO value?
A: It varies by industry, but generally lower is better. Compare to your industry average and historical performance.

Q2: Should I use annual or monthly credit sales?
A: Match the time period - if analyzing a quarter, use quarterly credit sales and 90 days.

Q3: Does this include cash sales?
A: No, DSO only considers credit sales as cash sales are collected immediately.

Q4: How can I improve my DSO?
A: Strategies include offering early payment discounts, tightening credit policies, and improving collection processes.

Q5: What if my DSO is increasing over time?
A: This may indicate collection problems, customer financial issues, or overly lenient credit terms.