How to Calculate Days Sales Outstanding

Days Sales Outstanding (DSO) Calculator

Results:

Your DSO is: 0 days

function calculateDSO() { var receivable = parseFloat(document.getElementById('dso_receivable').value); var creditSales = parseFloat(document.getElementById('dso_sales').value); var periodDays = parseFloat(document.getElementById('dso_days').value); var resultContainer = document.getElementById('dso_result_container'); var finalValue = document.getElementById('dso_final_value'); var interpretation = document.getElementById('dso_interpretation'); if (isNaN(receivable) || isNaN(creditSales) || isNaN(periodDays) || creditSales <= 0 || periodDays <= 0) { alert("Please enter valid positive numbers. Net credit sales and days must be greater than zero."); return; } // DSO Formula: (Average Accounts Receivable / Total Net Credit Sales) * Number of Days var dso = (receivable / creditSales) * periodDays; finalValue.innerHTML = dso.toFixed(2); resultContainer.style.display = 'block'; var message = ""; if (dso < 30) { message = "Excellent! A DSO below 30 days indicates a highly efficient collection process and strong cash flow."; } else if (dso <= 45) { message = "Good. Your DSO is within a healthy range for many industries, though there may be room for slight optimization."; } else { message = "Attention: A DSO over 45 days suggests that customers are taking longer to pay. This may lead to cash flow issues if not addressed."; } interpretation.innerHTML = message; }

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Understanding Days Sales Outstanding (DSO)

Days Sales Outstanding (DSO) is a critical financial ratio 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 your company's accounts receivable efficiency and overall liquidity.

The DSO Formula

DSO = (Average Accounts Receivable ÷ Total Net Credit Sales) × Days in Period

Key Components:

• Average Accounts Receivable: The mean value of money owed to your business by customers for goods or services delivered.
• Total Net Credit Sales: Only include sales made on credit; cash sales should be excluded as they do not affect receivables.
• Number of Days: Usually measured monthly (30 days), quarterly (90 days), or annually (365 days).

Why Monitoring DSO is Important

A high DSO suggests that a company is waiting too long to collect its payments, which can lead to a "cash crunch." Conversely, a low DSO indicates that the business is converting its receivables into cash quickly, which can be reinvested into the company or used to pay down debts. Most businesses aim for a DSO that is only slightly higher than their standard payment terms (e.g., if your terms are Net-30, a DSO of 35 is considered very healthy).

Real-World Example

Imagine a software company that has $100,000 in Accounts Receivable at the end of the month. During that 30-day month, they had $250,000 in Net Credit Sales.

Calculation: ($100,000 / $250,000) × 30 days = 12 Days

In this scenario, the company is collecting its debts incredibly fast, averaging only 12 days to see cash from their sales.