DSO calculation, sometimes called daily sales outstanding calculation, are a necessary statistic that all businesses should be aware of. The interval that you decide to run these figures is up to your personal preferences. You should complete a Dso calculation at least on an annual basis. For most businesses, however, it is a sound business practice to schedule a DSO calculation on a more regular basis. Many businesses calculate these figures on a monthly or quarterly basis. This gives them a more consistent platform from which to work when it comes to projections. |
This calculation is a quick and easy one to figure. It is a barometer of the success of your company so you should make sure you are aware of it. If you are wanting to expand your business and foresee approaching a financial institution with the intent of trying to secure more funding, this figure will be of interest.
In order to calculate the DSO calculation, you simply divide your accounts receivable by your average daily sales. When you express the result, it is stated in a number of days. For example, the DSO calculation for your business might be 35 days.
A good number for a DSO is a variable that will differ with each company. In general, however, the longer your DSO is, the more time your company will need to spend focusing on collections in accounts receivable. If you are like many business owners, you can think of many other areas in which you would like to place your resources besides the management of accounts receivable.
It is important to remember, however, that the DSO calculation is only one point in time. For this reason, it is important to calculate this measurement on an ongoing basis. In this way, you can track the progress of your company over the long term.
Related Articles -