Dso Calculation

Days Sales Outstanding (DSO) Calculator

Track your accounts receivable efficiency and improve cash flow management.

Monthly (30 Days) Quarterly (90 Days) Annual (365 Days) Custom Range

document.getElementById('period_days').onchange = function() { var customField = document.getElementById('custom_days'); if (this.value === 'custom') { customField.style.display = 'block'; } else { customField.style.display = 'none'; } }; function calculateDSO() { var ar = parseFloat(document.getElementById('ar_balance').value); var sales = parseFloat(document.getElementById('credit_sales').value); var periodSelect = document.getElementById('period_days').value; var days; if (periodSelect === 'custom') { days = parseFloat(document.getElementById('custom_days').value); } else { days = parseFloat(periodSelect); } var resultBox = document.getElementById('dso_result_box'); var resultValue = document.getElementById('dso_value'); var resultInterp = document.getElementById('dso_interpretation'); if (isNaN(ar) || isNaN(sales) || isNaN(days) || sales <= 0 || days <= 0) { alert("Please enter valid positive numbers for all fields. Sales must be greater than zero."); return; } var dso = (ar / sales) * days; resultBox.style.display = 'block'; resultValue.innerHTML = dso.toFixed(1) + " Days"; var category = ""; var color = ""; if (dso < 30) { category = "Excellent. Your collections process is highly efficient."; color = "#28a745"; } else if (dso <= 45) { category = "Good. Your DSO is within a healthy range for most industries."; color = "#1a73e8"; } else if (dso <= 60) { category = "Average. There may be room to optimize your invoicing or follow-up procedures."; color = "#f39c12"; } else { category = "High. A DSO over 60 days suggests potential cash flow issues and slow collections."; color = "#d93025"; } resultValue.style.color = color; resultInterp.innerHTML = "Interpretation: " + category; }

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Understanding Days Sales Outstanding (DSO)

Days Sales Outstanding (DSO) is a critical financial metric used to measure the average number of days it takes a company to collect payment after a sale has been made on credit. It is a key indicator of a business's accounts receivable (AR) efficiency and overall liquidity.

The DSO Formula

To calculate DSO manually, you use the following accounting formula:

DSO = (Accounts Receivable / Total Credit Sales) × Number of Days

Why DSO Matters for Your Business

• Cash Flow Management: A lower DSO means you are converting sales into cash faster, allowing you to reinvest in your business or pay debts.
• Customer Creditworthiness: Increasing DSO may indicate that customers are struggling to pay or that you are extending credit to high-risk clients.
• Operational Efficiency: A high DSO often highlights bottlenecks in your billing department or ineffective collection strategies.

Practical Example of DSO Calculation

Imagine a wholesale business with the following figures for a 90-day quarter:

• Accounts Receivable Balance: $45,000
• Total Credit Sales: $150,000
• Time Period: 90 Days

Calculation: (45,000 / 150,000) × 90 = 27 Days

In this example, the business takes an average of 27 days to collect its money, which is generally considered excellent for B2B transactions.

How to Improve Your DSO

1. Streamline Invoicing: Send invoices immediately after delivery of goods or services.
2. Offer Incentives: Provide small discounts (e.g., 2% off) for payments made within 10 days.
3. Automate Reminders: Use accounting software to send automated late payment notifications.
4. Tighten Credit Terms: Review the credit limits of customers who consistently pay late.