Days Sales Outstanding (DSO)
Days sales outstanding are also known as Days receivables, it measures the average number of days that a company takes to collect the payment after a credit sales has been recorded. It is used for estimation of an average collection period and helps to determine the efficiency with which the company’s accounts receivables are being managed.
LOW DSO The company has a strict control over its credit terms and takes fewer days to collect its receivables.
HIGH DSO The company is lenient with its credit terms and allows more days for its customers to pay for sales.
Formula and Example of Days Sales Outstanding (DSO)
DSO = (Accounts Receivables/Total Credit Sales)*No. of Days
Average AR for April = 60,000
Net credit sales for April = 3,00,000
No. of Days in Month = 30
DSO = (60,000/3,00,000)*30
Days Sales Outstanding = 6 Days