Days Sales Outstanding (DSO) Calculator
Your DSO is:
What is Days Sales Outstanding (DSO)?
Days Sales Outstanding (DSO) is a critical financial ratio that calculates the average number of days it takes for a business to collect payment from customers after a sale has been completed on credit. It is a key indicator of a company's accounts receivable turnover and overall liquidity.
The DSO Formula
To calculate your DSO manually, use the following formula:
Why DSO Matters
- Cash Flow Management: A lower DSO means you are getting cash back into the business faster, allowing for easier reinvestment and bill payment.
- Credit Quality: A rising DSO may indicate that you are extending credit to customers who are not creditworthy or that your collection department is underperforming.
- Customer Satisfaction: Sometimes, high DSO indicates disputes over invoices or dissatisfaction with products that lead to delayed payments.
Real-World Example
Imagine "TechCorp" has $60,000 in accounts receivable at the end of the month. During that 30-day month, they had $180,000 in total credit sales.
- Divide Receivable by Sales: $60,000 / $180,000 = 0.333
- Multiply by Days: 0.333 × 30 days = 10 Days
This means TechCorp takes an average of 10 days to collect their money, which is exceptionally efficient for most industries.
What is a "Good" DSO?
A "good" DSO varies significantly by industry. However, a general rule of thumb is that a DSO value below 45 days is considered healthy for most B2B businesses. If your DSO is 25% higher than your standard payment terms (e.g., you have Net 30 terms but a 40-day DSO), it's time to evaluate your collection process.