Day Sales Outstanding or DSO is a financial indicator that shows the average number of days it takes to convert a company’s accounts receivable into cash. It is a measure of the effectiveness of a company’s credit control function and procedures. The calculator shows how an improvement in DSO can affect the cashflow and profitability of a company. Outsourcing credit control to a specialist such as Sterling Credit Management can mean that improvements in cashflow pay for the service many times over. DSO is calculated by dividing accounts receivable by sales and multiplying this by the number of days in the respective period.
Regular DSO = (Total Receivables/Total Credit Sales) x Number of Days
Best Possible DSO – used only with reference to current value of receivables. It shows the number of days it takes to collect the debt in current period. To calculate it the following information is required:
- Current receivables
- Total credit sales for the period analysed
- The number of days in the period analysed
Best Possible DSO = (Current Receivables/ Total Credit Sales) x Number of Days