1. What is Days Sales Outstanding (DSO)?

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 simple DSO formula:

Where:

• \( Accounts\ Receivable \) — Total outstanding accounts receivable
• \( Daily\ Sales \) — Average daily sales (Total sales / Number of days in period)

Explanation: The formula divides the total accounts receivable by the average daily sales to determine how many days' worth of sales are tied up in receivables.

3. Importance of DSO Calculation

Details: DSO is a key indicator of a company's cash flow and financial health. A lower DSO means the company is collecting receivables more quickly, which is generally better for cash flow.

4. Using the Calculator

Tips: Enter accounts receivable in dollars and daily sales in dollars. Both values must be positive numbers. The result shows the average number of days it takes to collect payment.

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 credit terms.

Q2: How is daily sales calculated?
A: Daily sales is typically calculated as total sales over a period divided by the number of days in that period (e.g., annual sales/365).

Q3: What causes high DSO?
A: High DSO can result from lenient credit policies, poor collections processes, or customers paying slowly.

Q4: How can DSO be improved?
A: Strategies include stricter credit policies, early payment discounts, better invoicing practices, and more aggressive collections.

Q5: What's the difference between simple DSO and other DSO calculations?
A: Simple DSO is a basic calculation. Other methods like countback DSO or best possible DSO provide more nuanced views of receivables performance.