Definition – What is Days of Sales Outstanding?
Days of Sales Outstanding, also known as Days of Receivables, is an estimate of collection period. It illustrates how long it takes a company to collect accounts receivables in relation to their level of sales.
Formula – How to calculate Days of Sales Outstanding
Days of Sales Outstanding = Accounts Receivable / (Annual Sales / 365)
A company has accounts receivable of $3,000 and annual sales of $16,000.
Days of Sales Outstanding = $3,000 / ($16,000 / 365) = $3,000 / $43.836 = 68.45
Therefore, this company has 68.5 days of sales outstanding.
Sources and more resources
- Wikipedia – Days sales outstanding – Wikipedia’s explanation of days sales outstanding.
- Accounting Tools – Days sales outstanding calculation – A walk through an example formula for DSO.
- CFO – Six ways to reduce days sales outstanding – Some ideas on how to reduce DSO.
- Funding Gates – Reduce DSO: Minimizing Your Days Sales Outstanding – Some more ideas on how to reduce DSO.