How to Calculate Days Sales Outstanding
What is Days Sales Outstanding?
Days Sales Outstanding (DSO) measures the average number of days a company takes to collect payment after making a sale. A lower DSO means faster cash collection; a high DSO can signal collection problems or overly generous credit terms.
Step-by-Step Guide
- 1Get accounts receivable balance from the balance sheet
- 2Get total revenue for the period (usually annual)
- 3DSO = (Accounts receivable / Revenue) × Number of days in period
- 4For monthly: DSO = AR / (Revenue / 30)
Worked Examples
Input
AR £150k · Annual revenue £1.8M
Result
DSO = 30 days
(150k/1.8M) × 365 = 30 days