Days Sales Oustanding DSO

Agreeing better terms is half the battle, improving your cash collections and persuading customers to pay you as agreed…or at least soon after you agreed…is another.

Days Sales Outstanding (your DSO or debtor days) is an important measure for cash collections.

It is the number of days sales that customers haven’t paid you for yet.

If you make a sale of June 15th and you are paid on August 15th, you’ve given 61 days credit – half of June, all of July and half of August.

Days Sales Outstanding is calculated on your total end of the month numbers for trade debtors or accounts receivable.

You work backwards deducting the sales of each month and proportion the last month.

Let me show you with an example.

DSO Calculation

Debtors/accounts receivable 82,000 at the end of July

Sales in July were 30,000 for 31 days
Sales in June were 35,000 for 30 days
Sales in May were 29,000 in 31 days

82,000 less July of 30,000 and June of 35,000 leaves 17,000 effectively from May.

17,000/29,000 * 31 days means the equivalent of 18 days is left from May.

This gives a total DSO of 31 + 30 + 18

DSO = 79 days

It doesn’t matter if you have collected some of the July and June sales but have some of February, March and April remaining.

The idea is to reduce your collections to one number which can be tracked.

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