__Days
Sales Outstanding (DSO)__

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*Days Sales Outstanding* *(DSO)* is the number of
days it takes to collect your receivables in a given amount of time. It is an
important financial indicator as it shows both the age of a company’s accounts
receivable and the average time it takes to turn those receivables into cash.
DSO reveals how many days worth of sales are outstanding and unpaid within a
specific period.

Having an above average DSO costs your company money. As a
“Rule of Thumb,” your DSO delinquent balances should not exceed 33% to 50% of
the selling terms. If terms are 30 days, then an acceptable DSO or the “Safe
Collection Period” is 40 to 45 days. A DSO receivable at 15 days past terms is
a collection candidate. Remember, the less money that is being tied up in
accounts receivable the more money that can be used for company investment or
dividends.

### Calculating DSO

There are several ways to calculate DSO. The most common
method is to take the **Total Receivables** divided by the **Total Credit Sales **multiplied by **Days in Sales**. The terminology is explained below.

**Total Credit Sales- **This number should only include
credit sales. Cash sales should be excluded.

** **

**Total Receivables**- The total receivables in the Days
In Sales you are trying to calculate.

**Days in Sales- **Is a period in time as defined by the
following:

Quarterly (3 months)- 91 days

Bi-Annually (6 months)- 182 days

Annually (1 year)- 365 days

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Example:

Total Receivables = 5,000,000

#### Total Credit Sales =
9,000,000

#### Days
In Sales = 91

#### DSO=
(5,000,000/9,000,000) x 91 = 50.55