What is days sales outstanding?
Days Sales Outstanding (DSO) is the time it takes a company to collect its capital after a sale. This can be worked out on a monthly, quarterly and yearly basis. You can determine the DSO by dividing accounts receivable during a certain period by the total value of credit sales for the same period.
Where have you heard about days sales outstanding?
Days sales outstanding can be helpful in many ways. It can be indicative of how quickly customers are paying, a well functioning collections department and how many sales have been made throughout a certain period of time.
What you need to know about days sales outstanding.
Because cash is so important in the day-to-day workings of any business it is crucial to collect any outstanding receivables as quickly as possible. All companies can expect outstanding receivables but due to the time value of money principle, any money spent by the company whilst waiting to receive them are considered lost due their probable decrease in value. The quicker that a company can turn its sales in to cash, the better it is for the company and by reinvesting that cash they can then generate more sales.