Days Sales Outstanding
Days Sales Outstanding (DSO), a common performance benchmark, may be computed by
dividing Accounts Receivable by Average Daily (Credit) Sales.
To obtain
Average Daily Sales, total sales for the period is divided by the number of days
in the period. DSO is an estimate of the number of days of average sales in the
receivable. Use the first calculator below to compute simple DSO.
DSO may
be compared to the usual terms of sale for an estimate of delinquency. While DSO
tends to be very industry-specific, a common rule of thumb is that DSO is
approximately one and a half times the terms of sale. Many trade associations,
the Risk Management Association, and the Credit Research Foundation publish
industry statistics for comparative purposes.
The DSO formula may be
further refined by computing Best Possible DSO and Average Days Delinquency.
BPDSO uses current receivables as the denominator and when divided by Average
Days Sales, estimates the number of days of sales if the entire receivable was
current. Average Days Delinquency is the difference between the BPDSO -- all
current -- and the DSO. DSO and ADD may be readily benchmarked for performance
evaluation purposes. The first calculator below provides BPDSO and
ADD.
To smooth variations in sales over the period, the Credit Research
Foundation recommends usage of a three-month rolling average, as used in the
second formula below. This requires entry of the total receivable and the
current receivable for each of three months and total credit sales for those
same three months.
Best Possible Days Sales Outstanding
The Best Possible DSO is similar to ordinary DSO except that instead of Total Receivables it uses Current Receivables. Current Receivables are a subtotal of the invoices that are not yet due.
Average Days Delinquent
The Average Days Delinquency is the difference between DSO and Best Possible DSO.