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 evaluate their accounts receivable efficiency and cash flow management.

2. How Is Days Sales Outstanding Calculated?

The calculator uses the formula:

Where:

• \( DSO \) — Days Sales Outstanding (days)
• \( AR \) — Accounts Receivable (currency)
• \( NCS \) — Net Credit Sales (currency)
• \( ND \) — Number of Days in period (days)

Explanation: The ratio of accounts receivable to net credit sales shows what portion of sales is outstanding, multiplied by days to convert to time period.

3. Importance of DSO Calculation

Details: Lower DSO indicates faster collection of receivables, which improves cash flow. High DSO may signal collection problems.

4. Using the Calculator

Tips: Enter accounts receivable amount, net 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 under 45 days is good. Compare with industry averages.

Q2: Should I use annual or monthly data?
A: For monthly DSO, use monthly sales and 30 days. For annual, use annual sales and 365 days.

Q3: What if my net credit sales are zero?
A: DSO becomes undefined (infinite) as you can't divide by zero. This suggests no credit sales in the period.

Q4: How can I improve my DSO?
A: Implement better credit policies, offer early payment discounts, or improve collection processes.

Q5: Does this include cash sales?
A: No, only credit sales are included in this calculation as cash sales don't create receivables.