How to use this calculator?

This DSO calculator determines an organization’s DSO, a metric that determines the speed of your collections.

• Accounts Receivables: Accounts receivable (AR) is the balance of money due for goods or services delivered or used but not yet paid for by customers.
• Annual Revenue: The revenue received by a company is usually listed on the first line of the income statement as revenue, sales, net sales, or net revenue.

What is DSO?

Days sales outstanding (DSO) is the average number of days that it takes a company to collect payment after a sale has been made. This number shows the speed of cash flow, and provides an indicator of the efficiency and profitability of the business. DSO is often determined on a monthly, quarterly or annual basis.

What is a "good" DSO number?

There is not a single DSO number that represents excellent or poor AR management, this number varies depending on the industry and by the underlying payment terms.

On average, any number below 40 is typically considered a “good” number. By comparing different industry averages, recent numbers suggest that within pharmaceuticals, DSO is 62 days, within textiles, apparel and footwear it’s 98 days, and in grocery and specialty retail, it’s 7 days.

A lower ratio is more favorable because it means companies collect cash earlier from customers and can free up working capital. It also shows that the accounts receivables are positive and unlikely to be written off as bad debts.
 

How can I improve my DSO?

This can be achieved by getting ahead of major cash flow problems by monitoring DSO on a monthly and quarterly basis. As soon as DSO rises above the standard deviation, take action.

• Accurately evaluate customers for credit risk to reduce likelihood of late payment and increased DSO. Assess previous payment history and other indicators to predict risk.
• Keep a sharp eye on AR to ensure you take actions as soon as a payment is late to increase the likelihood of payment. Ideally, send proactive reminders a day or two before an invoice is due.
• Allow for online payments to receive the owed funds sooner, reducing DSO. Connect the invoice reminder directly to online payment options.