The Days Outstanding (DSO) Calculator helps businesses measure how long, on average, it takes to collect payments from customers after making a credit sale. It is a key financial metric used to assess a company’s cash flow, credit policies, and overall financial health.
A lower DSO indicates that a company collects payments quickly, which improves cash flow. A higher DSO may suggest inefficiencies in the collection process or lenient credit terms. The calculator is widely used in accounts receivable management, financial planning, and business analytics.
Formula for Days Outstanding Calculator
The formula to calculate Days Outstanding is:
Days Outstanding (DSO) = (Accounts Receivable / Total Credit Sales) × Number of Days
Where:
- Accounts Receivable = The total amount of unpaid invoices or receivables
- Total Credit Sales = The total sales made on credit during the measured period
- Number of Days = The length of the period being analyzed (e.g., 30 days for a month, 365 days for a year)
This formula helps businesses understand how efficiently they collect payments from customers.
Days Outstanding Reference Table
To simplify calculations, here’s a reference table showing estimated DSO values for different accounts receivable and credit sales amounts:
| Accounts Receivable | Total Credit Sales | Number of Days | Estimated DSO |
|---|---|---|---|
| $50,000 | $200,000 | 365 | 91.25 days |
| $75,000 | $500,000 | 365 | 54.75 days |
| $100,000 | $1,000,000 | 365 | 36.5 days |
| $40,000 | $600,000 | 90 | 6 days |
| $60,000 | $900,000 | 90 | 6 days |
| $30,000 | $500,000 | 30 | 1.8 days |
This table allows businesses to quickly assess their estimated DSO without manual calculations.
Example of Days Outstanding Calculator
Let’s assume a company has $120,000 in accounts receivable, with $900,000 in total credit sales for the year (365 days).
Using the formula:
Days Outstanding (DSO) = (120,000 / 900,000) × 365
Days Outstanding (DSO) = 48.67 days
This means that, on average, it takes the company 49 days to collect payments from customers.
Most Common FAQs
DSO helps businesses determine how efficiently they collect payments from customers. A lower DSO improves cash flow and reduces financial risk, while a higher DSO may indicate slow collections and potential cash flow issues.
To lower DSO, businesses can enforce stricter credit policies, offer early payment discounts, send reminders for overdue invoices, and automate their accounts receivable process.
Not necessarily. Some industries naturally have longer payment cycles due to contractual terms. However, a consistently high DSO may indicate poor collection processes or excessive reliance on credit sales.