Days sales outstanding
(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).
