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Days sales outstanding (DSO) is the calculation of average number of days which a company takes in collection of its account receivables. This is an important element of order to cash cycle and it increases the cash flow of company.
DSO is used to check how many days it takes to collect the amount of credit sales during a period. Usually, this figure is calculated for month, quarter or year, however there is no such obligation in this regard.
How days sales outstanding (DSO) is calculated?
DSO is calculated by multiplying the account receivable to the number of days for which DSO is being calculated and dividing the figure by total credit sales made during that period.
(Accounts receivable × Number of days) / Total credit sales
Lower value of DSO indicates that the company is more efficient in collecting the amount incurred by credit sales.