Days' Sales Outstanding Calculator
**This is a basic calculator and does not accept commas. When entering values, just enter the numbers.
Days' Sales Outstanding Formula
**Note this ratio is also referred to as DSO.
Days' Sales Outstanding =
(Average Accounts Receivable/Total Credit Sales) * Number of Days
(Average Accounts Receivable/Total Credit Sales) * Number of Days
What is Days' Sales Outstanding?
Days' Sales Outstanding is used in accounting to measure how long it takes a company to collect payments after sales, on average. This should be measured on a consistent basis to evaluate trends; typically monthly or quarterly. It is important to note that all values should be for the same period being evaluated. To calculate average receivables you would take receivables at the beginning of the period and the receivables at the end of the period, then divide by 2. Next, you would take the total credit sales for that period. Once you divide Average Accounts Receivable by the Total Credit Sales, you would then multiply by the number of days in that period.
A few key take-aways from evaluating DSO are as follows:
1. A business with a high DSO may have customers that are experiencing financial difficulties. The business may be offering credit to customers too loosely.
2. A business with a low DSO may be overly stringent on their credit policy, which may be stearing potential customers away.
As with all accounting measures, it is important to take the industry in which the business operates in into consideration, as each industry sets the standard for what is expected or what is "normal" for that industry. Additionally, for a small business, a "longer" period, or higher DSO, may cause financial difficulties due to the impact it has on cash flow for the business. They may not have available cash to keep the business going, so it should seek ways to shorten days' sales outstanding to keep cash moving.