DSO, or Days Sales Outstanding, is a very useful measure that tells you how effective you are at ensuring your customers stick to their payment terms. Late payers create numerous issues including cashflow shortages that require you to borrow to cover the shortfall. In addition, your chances of collecting overdue amounts reduce over time so you may need to actually write-off the debt in the end. This, of course, should be avoided if at all possible.
The usual DSO calculation uses outstanding amounts on your ledger as well as an amount of credit sales over a period of time. Sales numbers aren’t always easy to get so this calculator uses your current debt number as an approximation of sales. If all of your sales are credit sales, and this is the case for a lot of businesses, then this approximation will work fine.
In addition the calculator assumes 30-day credit terms.
|30 - 33||Nicely done - you appear to run a tight credit ship.|
|34 - 36||Generally OK but it can be better and you may have some customers who are late payers.|
|36 - 39||May be some concerns here, you should consider reviewing your overdue processes.|
|40 - 45||You are likely to have some significant overdue customers - a ledger review is highly recommended.|
|46+||There is no hiding the fact that this is a poor result. Seek professional help fast.|