The total amount of money owed to you by customers.
Total sales made on credit during the specific period.
Standard periods are Monthly (30), Quarterly (90), or Yearly (365).
Days Sales Outstanding
0 Days
Understanding Days Sales Outstanding (DSO)
Days Sales Outstanding (DSO) is a critical financial metric used by companies to estimate the average size of their outstanding accounts receivable. It effectively measures the average number of days that it takes for a company to collect payment after a sale has been made.
DSO is often determined on a monthly, quarterly, or annual basis. A lower DSO value indicates that it takes a company fewer days to collect its accounts receivable. Conversely, a high DSO number shows that a company is selling its product to customers on credit and taking longer to collect money.
The DSO Formula
The standard formula for calculating Days Sales Outstanding is:
DSO = (Accounts Receivable / Total Credit Sales) × Number of Days
Where:
Accounts Receivable: The balance of money due to a firm for goods or services delivered or used but not yet paid for by customers.
Total Credit Sales: The total amount of sales made on credit during the period being measured (excluding cash sales).
Number of Days: The length of the period for which the calculation is being made (e.g., 30 for a month, 365 for a year).
Why is DSO Important?
Monitoring DSO is essential for cash flow management and liquidity analysis:
Cash Flow Efficiency: High DSO means cash is tied up in receivables, which cannot be used for operations, investments, or paying debts.
Credit Policy Effectiveness: It helps businesses evaluate if their credit terms are too loose or if their collections department is underperforming.
Customer Risk: An increasing DSO might indicate that customers are struggling to pay, signaling potential bad debt risks.
Interpreting Your Results
While benchmarks vary significantly by industry, here is a general guide to interpreting DSO:
Under 30 Days: Generally considered excellent. It implies efficient collections and strict credit policies.
30 to 45 Days: Considered average for many B2B industries. It usually reflects a standard Net-30 term policy with some slight delays.
Over 45 Days: May indicate issues with the collections process or overly lenient credit terms. It suggests cash is being tied up unnecessarily.
Example Calculation
Imagine a company has an Accounts Receivable balance of $40,000 at the end of the month. During that 30-day month, they made $120,000 in total credit sales.
This means it takes the company an average of 10 days to collect payment from customers, which is a very healthy figure indicating high liquidity.
function calculateDSO() {
// Get input values using var
var arInput = document.getElementById('accountsReceivable');
var salesInput = document.getElementById('totalCreditSales');
var daysInput = document.getElementById('periodDays');
var resultBox = document.getElementById('dsoResult');
var resultValue = document.getElementById('resultValue');
var resultComment = document.getElementById('resultComment');
// Parse values
var ar = parseFloat(arInput.value);
var sales = parseFloat(salesInput.value);
var days = parseFloat(daysInput.value);
// Validation logic
if (isNaN(ar) || isNaN(sales) || isNaN(days)) {
alert("Please enter valid numbers for all fields.");
return;
}
if (sales === 0) {
alert("Total Credit Sales cannot be zero.");
return;
}
if (ar < 0 || sales < 0 || days < 0) {
alert("Values cannot be negative.");
return;
}
// Calculation Logic: (AR / Credit Sales) * Days
var dso = (ar / sales) * days;
// Round to 1 decimal place
dso = Math.round(dso * 10) / 10;
// Display Result
resultBox.style.display = "block";
resultValue.innerHTML = dso + " Days";
// Dynamic commentary based on result
var comment = "";
if (dso < 30) {
resultBox.style.borderLeftColor = "#27ae60"; // Green
comment = "Excellent. Your collection process is highly efficient.";
} else if (dso >= 30 && dso <= 45) {
resultBox.style.borderLeftColor = "#f1c40f"; // Yellow/Orange
comment = "Average. Your collection period is standard for most industries.";
} else {
resultBox.style.borderLeftColor = "#e74c3c"; // Red
comment = "High. Consider reviewing your credit policies or collection procedures.";
}
resultComment.innerHTML = comment;
}