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Days sales outstanding

Days sales outstanding is the average number of days a business takes to collect payment after a sale, calculated as accounts receivable divided by daily revenue; a shorter figure signals tighter credit control.

ByHoang TruongUpdated

FrameworkRatio analysis

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A company with €1.5 million in accounts receivable and €9 million in annual revenue has days sales outstanding of (1.5 ÷ 9) × 365 = 61 days. A sale on credit at day 0 is not converted to cash until day 61 on average — customers take just over two months to pay, tying up working capital for that whole interval.

Where it fits
SubjectFinancial AccountingCoreTopicWorking Capital & Trade AccountsCoreTopicFinancial Statement Analysis & RatiosCore

The formula

LaTeX
DSO=Accounts receivableRevenue×Days in period\text{DSO} = \dfrac{\text{Accounts receivable}}{\text{Revenue}} \times \text{Days in period}

Variables

Accounts receivable (trade debtors at period end) (€)
Revenue (total sales for the period) (€)
Days in period (typically 365 for an annual calculation) (days)

Also called the debtor collection period; a shorter DSO indicates tighter credit control and faster cash conversion.

Check yourself

PracticeCORE

A company has accounts receivable of €2,000,000 at year-end, annual revenue of €8,000,000, and annual cost of goods sold of €5,600,000. What is the days sales outstanding (DSO), and which statement best describes a rising DSO?

Select an answer to check your understanding.