1. What is Days Sales Outstanding (DSO)?

Days Sales Outstanding (DSO) is a financial metric that measures the average number of days it takes a company to collect payment after a sale has been made. It indicates the efficiency of a company's accounts receivable management and cash flow.

2. How Does the Calculator Work?

The calculator uses the DSO formula:

Where:

• \( DSO \) — Days Sales Outstanding (days)
• \( \text{Accounts Receivable} \) — Current accounts receivable balance (currency)
• \( \text{Total Credit Sales} \) — Annual credit revenue (currency/year)

Explanation: The formula calculates how many days' worth of sales are tied up in accounts receivable, providing insight into collection efficiency.

3. Importance of DSO Calculation

Details: DSO is crucial for assessing a company's liquidity, credit policies effectiveness, and overall financial health. A lower DSO indicates faster collection and better cash flow management.

4. Using the Calculator

Tips: Enter accounts receivable in currency units and total credit sales in currency/year. Both values must be positive numbers for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DSO value?
A: Lower DSO is generally better. Industry standards vary, but typically DSO under 45 days is considered good, while over 60 days may indicate collection issues.

Q2: How often should DSO be calculated?
A: DSO should be calculated monthly to track trends and identify potential cash flow problems early.

Q3: What factors can affect DSO?
A: Credit terms, customer payment behavior, economic conditions, and collection procedures all impact DSO.

Q4: Can DSO be too low?
A: Extremely low DSO might indicate overly strict credit policies that could limit sales growth.

Q5: How does DSO differ from collection period?
A: DSO specifically measures the collection period for credit sales, while collection period may include other receivables.