Days Sales Outstanding

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What is Days Sales Outstanding (DSO)?

Days sales outstanding is the measure of the average number of days that it takes a company to collect payment after a sale has been made. The formula for determining days sales outstanding, or DSO, is calculated by dividing the amount of accounts receivable during a given period by the total value of credit sales during the same period and multiplying the result by the number of days in the period measured.

Why does a company want to have a low average days sales outstanding?

Since the days sales outstanding refers to how many days, on average, it takes a company to collect payment on any sales it has made, a low average means a company is collecting on its account receivables quickly. Doing so means the business runs less on credit and operates with a higher amount of cash, which it can utilize more quickly.

What are some ways to reduce a business’ days sales outstanding?

There are a number of recommendations for reducing the days sales outstanding average for a business, including:

  • Define customer payment terms
  • Review invoicing processes
  • Manage accounts receivable carefully
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Leah CostelloNovember 2, 2018