1. What is Days Sales Outstanding (DSO)?

DSO (Days Sales Outstanding) measures the average number of days it takes a company to collect payment after a sale has been made. It's a key metric for assessing accounts receivable efficiency and cash flow.

2. How Does the Calculator Work?

The calculator uses the DSO formula:

Where:

• Average Accounts Receivable — The average amount of money owed to your company during the period
• Sales — Total credit sales for the period
• 365 — Number of days in a year (can be adjusted for different periods)

Explanation: The formula calculates how many days' worth of sales are tied up in accounts receivable.

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 collections.

4. Using the Calculator

Tips: Enter average accounts receivable and total sales amounts in dollars. Both values must be positive numbers for accurate calculation.

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 payment terms.

Q2: Should I use annual or quarterly data?
A: You can calculate DSO for any period, but ensure both AR and sales data cover the same time frame.

Q3: How can I improve my DSO?
A: Strategies include stricter credit policies, early payment discounts, better invoicing practices, and more aggressive collections.

Q4: What's the difference between DSO and DPO?
A: DSO measures how quickly you collect from customers, while DPO (Days Payable Outstanding) measures how quickly you pay suppliers.

Q5: Can DSO be negative?
A: No, DSO cannot be negative as both AR and sales should be positive values in the calculation.