Calculating Days Sales Outstanding (DSO)

Days Sales Outstanding

Days Sales Outstanding (DSO) is the number of days it takes to
collect your receivables in a given amount of time. It is an important
financial indicator as it shows both the age of a companys accounts
receivable and the average time it takes to turn those receivables
into cash. DSO reveals how many days worth of sales are
outstanding and unpaid within a specific period.
Having an above average DSO costs your company money. As a
Rule of Thumb, your DSO delinquent balances should not exceed
33% to 50% of the selling terms. If terms are 30 days, then an
acceptable DSO or the Safe Collection Period is 40 to 45 days. A
DSO receivable at 15 days past terms is a collection candidate.
Remember, the less money that is being tied up in accounts
receivable the more money that can be used for company
investment or dividends.
Calculating DSO
There are several ways to calculate DSO. The most common method
is to take the Total Receivables divided by the Total Credit
Sales multiplied by Days in Sales. The terminology is explained
below.
Total Credit Sales- This number should only include credit sales.
Cash sales should be excluded.
Total Receivables- The total receivables in the Days In Sales you
are trying to calculate.
Days in Sales- Is a period in time as defined by the following:

Quarterly (3 months)- 91 days

Bi-Annually (6 months)- 182 days
Annually (1 year)- 365 days
Example:
Total Receivables = 5,000,000
Total Credit Sales = 9,000,000
Days In Sales = 91
DSO= (5,000,000/9,000,000) x 91 = 50.55
-----------------------------------------------------------------------------------------------------------------------Best Possible Days Sales Outstanding
Best Possible Delinquent Sales Outstanding utilizes current (nondelinquent) receivables to calculate the best length of time achieved
in turning over receivables. This number should closely mirror your
terms and represents the best possible level of receivables.
Calculating Best Possible DSO
Current Accounts Receivable x # Of Days Being Measure
Total Credit Sales For Period
-----------------------------------------------------------------------------------------------------------------------Days Delinquent Sales Outstanding
Days Delinquent Sales Outstanding (DDSO) or Average Days
Delinquent (ADD)is a calculation used to determine the average
days invoiced are past due. This measurement takes into account all
overdues in proportion to the accounts receivables balance.
Calculating DDSO
DDSO= Best Possible DSO DSO

-----------------------------------------------------------------------------------------------------------------------True Days Sales Outstanding

True DSO Calculation computes the actual number of days credit
sales that are unpaid by tracking individual invoices to the month of
sales.
Calculating True DSO
True DSO Per Invoice= # of days from invoice due date to reporting
date multiplied by (invoice date/net credit sales for month of sale)
-----------------------------------------------------------------------------------------------------------------------Sales Weighted Days Sales Outstanding
Sales Weighted DSO is a calculation used to determine the average
time in days that receivables are outstanding.
Calculating Sales Weighted DSO
((Current Age Category/Credit Sales Current Period) + (1 to 30 Day
Age Category/Credit Sales Prior Period) + (31 to 60 Day Age
Category/Credit Sales of 2 Prior Period) + (61 to 90 Day Age
Category/Credit Sales of 3 Prior Period) + (91 to 120 Day Age
Category/Credit Sales of 4 Prior Period) + (etc.)) times 30