How do I Calculate Days of Outstanding Sales?

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The days of outstanding sales is used by businesses to calculate the amount of time needed to collect sales which were made on credit. If the days sales outstanding (DSO) is too long, the company may be inefficient at collecting cash due. When sales remain outstanding for long periods of time, the company is in danger of not receiving the cash, which could lead to a loss. Cash that is collected swiftly can be used over again for other business purposes. Many businesses have a specific formula for calculating the DSO.

Find out the total amount of receivable the company has outstanding. Determine how much of your sales were made on credit. Many businesses calculate the DSO on a quarterly basis, which becomes the time period.

Calculate the DSO for 90 days. For example if your total receivables are $15,000 and your credit sales are $25,000 you can calculate the DSO for a quarterly basis. Divide the total receivables by the credit sales ($15,000/$25,000) and then multiply the result times 90 days, according to Investopedia.

Review you DSO. The DSO is this example is 54 days. On average it takes 54 days to collect credit accounts. This means the average time is close to 60 days past due.

Tips & Warnings

  • Many companies like to see credit accounts collected within 30 days. A company may want to review its collection policies and procedures to see if the time can be shortened.
  • If a company has a DSO of 90 or 120 days, these accounts are closing in on a charge-off date. An account that is charged off means the company has reported the account as a loss to the IRS.

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