Sales revenue earned but tied up in receivables cannot be used to fund operations, grow the business through investment, or be applied to retire costly debt. It is a simple calculation:įor example, if a company has an average accounts receivable daily balance of $640,000 over 30 days and total credit sales of $742,000 for the same period, its DSO is 25.9 days.ĭSO is a valuable indicator as it gives an indication of the efficiency of a company’s accounts receivable management as well as a tool to track changes in the quality of a company’s credit sales. The lower the number, the more efficient the company is, and the less of its cash remains tied up as accounts receivable. Using DSO to Improve Cash Flow Managementĭays Sales Outstanding (DSO) is a measure of how efficiently and quickly a company converts credit sales into cash and how much of its credit sales are tied up unproductively as accounts receivable.
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