DSO calculator: days sales outstanding and receivables turnover
Enter your receivables, credit sales and the length of the period to see how many days customers take to pay on average.
Short answer
Days sales outstanding (DSO) = receivables ÷ credit sales × days in the period. With 67,000 outstanding at the end of August and 122,000 of sales in August, DSO is 67,000 ÷ 122,000 × 31 = 17.0 days. With 14-day payment terms, customers pay 3 days late on average.
DSO calculator
Credit sales excluding VAT. The receivables balance usually includes VAT: strip it out, or use sales including VAT. Any currency works.
- Average days beyond terms
- 3.0 days
- Receivables turnover per year
- 21.4×
- Days sales outstanding (DSO)
- 17.0 days
DSO formulas
| Measure | Formula | Example |
|---|---|---|
| Days sales outstanding (DSO) | receivables ÷ credit sales × days in the period | 67,000 ÷ 122,000 × 31 = 17.0 |
| DSO over a year | receivables ÷ annual credit sales × 365 | 300,000 ÷ 2,400,000 × 365 = 45.6 |
| Receivables turnover | 365 ÷ DSO, or annual sales ÷ average receivables | 365 ÷ 17.02 = 21.4 times |
| Days beyond terms | DSO − payment terms | 17.0 − 14 = 3.0 days |
Use credit sales, not cash or card sales: those never appear in receivables. The receivables balance includes VAT, revenue in the profit and loss account does not. Put both on the same basis, or DSO looks a fifth higher at a 20% VAT rate.
A monthly DSO swings with revenue: after a month with a large invoice at the end it rises, even if nobody pays later. Look at a three-month average and at the ageing of your open items.
What is a good DSO?
Compare DSO with your own payment terms. Close to or below them means customers pay on time. Fifteen days or more above them means cash is tied up that you could be using.
| DSO against payment terms | What it means |
|---|---|
| Equal or lower | Customers pay on time or early |
| Up to 10 days higher | Normal; a few late payers |
| 10 to 30 days higher | Credit control needs attention |
| More than 30 days higher | Structural problem or bad debts |
Every day of DSO costs money. At 1.4 million in yearly sales, each day ties up about 3,800. Collecting ten days faster puts 38,000 more in the bank.
How to lower DSO
- Invoice straight away. Every day between delivery and invoice counts towards DSO.
- Remind on fixed days. A friendly reminder on the due date works better than a demand after 30 days.
- Largest items first. Sort by amount times days overdue and call those customers.
- Make paying easy. A payment link or direct debit on the invoice shortens payment time.
Getting the figures from your accounts
Receivables are on the balance sheet, sales in the profit and loss account, and the aged receivables report is in your accounting software. More approaches are in improving accounts receivable with data. Connect Xero, QuickBooks Online or Exact Online to DigiData and the financial dashboard shows DSO and overdue items per customer every day. DSO is also part of your working capital.
Frequently asked questions
What does DSO mean?
Days sales outstanding: the average number of days between sending an invoice and being paid. It is also called debtor days or the average collection period.
Do I include VAT?
Put receivables and sales on the same basis. The simplest is to divide the receivables balance by 1.2 at a 20% VAT rate, or use sales including VAT. Otherwise DSO looks higher than it is.
Which period should I use?
A month gives a current picture but swings. A quarter or year is steadier. Use the same period for sales as the number of days in the formula: 31 for August, 92 for a July to September quarter.
What is the difference between DSO and receivables turnover?
They say the same thing in different ways. Turnover is how often per year receivables turn into cash; DSO is how many days that takes on average. 365 divided by one gives the other.
DSO and overdue items, updated every day
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