This DSO calculator determines an organization’s DSO, a metric that determines the speed of your collections.
Days sales outstanding (DSO) is the average number of days that it takes a company to collect payment after a sale has been made. This number shows the speed of cash flow, and provides an indicator of the efficiency and profitability of the business. DSO is often determined on a monthly, quarterly or annual basis.
There is not a single DSO number that represents excellent or poor AR management, this number varies depending on the industry and by the underlying payment terms.
On average, any number below 40 is typically considered a “good” number. By comparing different industry averages, recent numbers suggest that within pharmaceuticals, DSO is 62 days, within textiles, apparel and footwear it’s 98 days, and in grocery and specialty retail, it’s 7 days.
A lower ratio is more favorable because it means companies collect cash earlier from customers and can free up working capital. It also shows that the accounts receivables are positive and unlikely to be written off as bad debts.
This can be achieved by getting ahead of major cash flow problems by monitoring DSO on a monthly and quarterly basis. As soon as DSO rises above the standard deviation, take action.
For more tips on how to improve your DSO download our Essential Guide to DSO. You can also book a consultation with one of our AR experts to discover the power of Smart AR and you could reduce your DSO by 30% on average.