Days Sales Outstanding

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In accountancy, Days Sales Outstanding is a company's average collection period. A low figure indicates that the company collects its outstanding receivables quickly. Typically it is looked at either quarterly or yearly (90 or 365 days).

It's a great leading indicator of impending trouble at a company particularly with product support and customer service. It tends to increase as a company loses control over quality of its CRM and can be a great indicator of revenue problems or warranty reserve for the future.

Days Sales Outstanding, or DSO, is calculated as: Total Outstanding Receivables at the end of the period analyzed divided by Total Sales for the period analyzed (typically 90 or 365 days), times the number of days in the period analyzed. That is,

DSO = (Receivables / Sales ) * Days.

DSO can vary over the course of a year, depending on a company's business cycle. Of interest when analyzing the performance of a company is the trend in DSO. If DSO is getting longer, customers are taking longer to pay their bills, which may be a warning that customers are dissatisfied with the company's product or service, or that salespeople are making sales to customers that are less credit-worthy, or that salespeople have to offer longer payment terms in order to seal the deal. (Of course, it could also mean that the company has an inefficient or overtaxed accounts receivables department.)