Days sales outstanding

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(DSO).

A credit measurement ratio calculated by dividing accounts receivable outstanding at the end of time period by the average daily credit sales for the period.


Example 1

Accounts receivable = EUR 50m.

Daily credit sales = EUR 2m.


Then Days sales outstanding:

= 50 / 2

= 25 days.

Based on annual total sales - or total sales for any other period - the calculation is modified appropriately for the length of the time period in days (for example 365 days per year).


Example 2

Annual credit sales = EUR 730m.

Accounts receivable = EUR 50m.


Then Days sales outstanding:

= (50 / 730) x 365

= 25 days (as before).

A lower result is considered desirable although the business needs to ensure it does not put itself at a competitive disadvantage to other businesses which offer easier credit terms to customers.

DSO is also sometimes known as Days billing outstanding (DBO) or Days receivables outstanding (DRO).


See also