This Days Sales Outstanding Excel Template is an educational tool that will walk you through the calculation of Days of Sale Outstanding (DSO). DSO is the average number of days that it takes to receive payment for sales that were made on credit, or, in other words, how long does it take for accounts receivable to be converted into cash.
Formula for Days Sales Outstanding
To calculate DSO, you should divide the accounts receivable of a period by the total net credit sales, and then multiply the result by the total number of days in the period. The formula for calculating DSO is as follows:
DSO = Accounts Receivables / Net Credit Sales X Number of Days
What Does a High or Low DSO Indicate?
Having a large days sales outstanding can be a problem for a company as it lengthens the cash conversion cycle of the company. Some of the reasons for a high DSO account can be:
- Making credit sales to customers with a low FICO score
- An inefficient collection process of credit sales
- Sales team offering longer payments in order to improve their numbers
On the other hand, a low DSO indicates that the company has a more efficient collection process. This can result when customers are paying on time, or when the company is stricter on its credit policy. Companies with lower DSO are less likely to have problems paying operational expenses. They can also reinvest the excess money collected from customers into purchasing assets to increase profitability.
More Useful Resources
If you’d like to see more examples in addition to this day sales outstanding Excel template, make sure to check all the Financial Model templates on CFI Marketplace.