1. What is Days Sales Outstanding?

Days Sales Outstanding (DSO) is a financial metric that measures the average number of days it takes a company to collect payment after a sale has been made. It indicates the efficiency of a company's accounts receivable management.

2. How Does the Calculator Work?

The calculator uses the DSO formula:

Where:

• Ending Accounts Receivable — Total value of outstanding invoices at the end of the period
• Net Credit Sales — Total sales made on credit during the period
• Number of Days — Time period being analyzed (typically 30, 90, or 365 days)

Explanation: The formula shows what percentage of credit sales is still outstanding, then converts it to days.

3. Importance of DSO Calculation

Details: DSO is crucial for understanding cash flow, assessing credit policies, and comparing collection efficiency with industry peers. Lower DSO generally indicates faster collection of receivables.

4. Using the Calculator

Tips: Enter ending accounts receivable and net credit sales in dollars, and the number of days in the period. All values must be positive (sales must be greater than zero).

5. Frequently Asked Questions (FAQ)

Q1: What is a good DSO value?
A: Ideal DSO varies by industry, but generally lower is better. Compare with industry averages and your company's historical values.

Q2: Should I use annual or quarterly data?
A: Both can be useful. Annual DSO shows long-term trends while quarterly DSO can reveal seasonal patterns.

Q3: How does DSO differ from accounts receivable turnover?
A: They measure the same thing differently. AR turnover shows how many times receivables are collected in a period, while DSO converts this to days.

Q4: What if my company has seasonal sales?
A: Consider using a rolling average or comparing with the same period in previous years for more accurate analysis.

Q5: Can DSO be too low?
A: Extremely low DSO might indicate overly strict credit policies that could be limiting sales growth.