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 on credit.

Purpose: It helps businesses evaluate 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)
• \( AR \) — Accounts Receivable ($)
• \( NCS \) — Net Credit Sales ($)
• \( D \) — Number of days in period (days)

Explanation: The ratio of receivables to credit sales shows what portion of sales is outstanding, multiplied by days to convert to time measurement.

3. Importance of DSO Calculation

Details: Lower DSO indicates faster collection, better cash flow. High DSO may signal collection problems or lax credit policies.

4. Using the Calculator

Tips: Enter accounts receivable amount, net credit sales for the period, and number of days in the period (typically 30, 60, 90, or 365).

5. Frequently Asked Questions (FAQ)

Q1: What's a good DSO value?
A: It varies by industry, but generally under 45 days is good, while over 60 may need improvement.

Q2: Should I use annual or quarterly data?
A: Both are valid - annual gives broader picture, quarterly shows seasonal trends.

Q3: How can I reduce my DSO?
A: Improve invoicing processes, offer early payment discounts, enforce credit terms strictly.

Q4: Does DSO include cash sales?
A: No, only credit sales are included in the calculation.

Q5: What if my net credit sales is zero?
A: DSO becomes undefined (division by zero) - this suggests all sales are cash-based.