DSO (Days sales outstanding)
#29GUIDING QUESTION
How long does it take you to get paid by your customers?
DSO (Days Sales Outstanding): measures collection speed.
01.What it is
DSO reflects the average number of days a company takes to collect its invoices after a sale. It is an indicator of how efficiently credit is managed and of the risk of non-payment.
02.Component masses
- Average trade receivables
- Credit sales
03.Formula
MAIN FORMULA
DSO (collection days): (Average trade receivables ÷ Credit sales) × 365(days)
04.Interpretation
- ↓ DSO → fast collection and good credit management.
- ↑ DSO → risk of non-payment, cash strain or lax commercial policies.
05.Related to
- Cash conversion cycle
- Liquidity
- DPO
- DIO