What’s inside?
- Templates for monthly/annual calculation of DSO
- Industry-based average and Best Possible DSO(BSO) insights
- Average savings calculation based on DSO reduction
- 13 tried and tested tips to reduce DSO
What is DSO?
DSO (Days Sales Outstanding) is the average number of days it takes for a company to collect its accounts receivables. This is quantified by how long it takes to convert credit sales to cash. For instance, if the DSO of a company is 45 days, it means that they are able to collect back their past dues within 45 days, approximately.
DSO Calculation Methods
DSO can be calculated with various methods, but the simplest DSO calculation formula is:
DSO = Accounts Receivables/ Total Credit Sales x Average No. of Days
Let’s say a business is making 40,000 in credit sales and recovering accounts receivable worth 20,000 in accounts receivable in average 45 days.
Then,
DSO= 20,000/40,000 x 45 = 22.5 days
Why is DSO a Critical Metric for Businesses?
A business can measure its financial health with DSO. How fast a company can collect its receivables back indicates its impact on working capital. DSO is a critical metric because it can help you understand:
- Your average sales and accounts receivable status.
- How efficient your collections team is — based on that, you can optimize your credit policy.
High DSO: A high DSO indicates that a business is taking more days to collect its debt.
Low DSO: A low DSO means a business is collecting its debt within its payment time and that it has promptly paying customers.
How to Calculate DSO in Excel?
Step 1: Download the excel template
Step 2: Take 5 mins to fill out your sales data and accounts receivable information
Step 3: Benchmark your DSO with industry’s best possible DSO. Calculate the dollars you can save by reducing your DSO.
