Days sales outstanding or DSO is probably one of
the most critical performance metrics in the debt collection process. It indicates an average number of days
that a company takes to collect revenue after a sale has been
made. Regular DSO requires three numbers: total accounts receivable, total
credit sales for the period analyzed, and the number of days in the period. Days
sales outstanding is calculated as:
Dayssales outstanding = Accounts receivable \ Total credit sales for the period *
Number of days in the period.
A
low DSO number means that it takes a company fewer days to collect its accounts
receivable, while a high DSO number shows that a company is selling its product
or services to customers on credit - essentially a free loan - and taking
longer to collect money.
