Formula
DSO = (Total Accounts Receivable / Total Credit Sales) * Number of Days
Know your metric
Importance of
Days Sales Outstanding
Essential for assessing cash flow efficiency and the effectiveness of the collections team.
Cash Flow Management
Offers valuable insights into cash flow management, crucial for operational funding.
Operational Efficiency
Helps gauge the efficiency of the accounts receivable processes and the effectiveness of the collections team.
Customer Payment Behavior
Provides an understanding of customer payment behaviour, helping tailor collection strategies.
Drawbacks of
Days Sales Outstanding
High DSO might not always indicate problems if aligned with industry credit terms.
Not Industry Specific
DSO standards vary widely across industries, making it less useful for benchmarking without context.
Sensitive to Seasonality
Can fluctuate significantly due to seasonal sales patterns, not necessarily indicating a problem.
Does Not Consider Sales Volume
High sales volumes can distort the perception of efficiency if receivables are also growing.
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