Daily Sales Outstanding Formula

Daily Sales Outstanding Formula

See Also:
Daily Sales Outstanding (DSO)
Daily Sales Outstanding Calculation
Problem With Days Sales Outstanding Example
CEI vs DSO
Days Inventory Outstanding
Operating Cycle Analysis
Days Payable Outstanding
Unlock Cash in Your Business

Daily Sales Outstanding Formula

The DSO formula is the basic way to calculate daily sales outstanding. In application a very valuable performance indicator becomes evident. Use the following DSO formula below:

Daily Sales Outstanding = 365 X (Average Accounts Receivable / Total Credit Sales)

The formula is derived from an understanding that a company’s success is measured by returns. More specifically, it refers to the notion that the more receivables are collected, the better off a company is faring. The “365” refers to the number of days contained in the recording period. If you calculate an overall estimate of Daily Sales Outstanding for the year, utilize 365 as an appropriate figure; representing the 365 days in the year.

Accounts Receivable Explanation

The average accounts receivable is fairly straight forward. This figure represents the overall amount that a company is owed. As the receivables goes up, that means that the company is making more sales overall. More clients owe the company money and therefore the net worth is increasing. At the same time, however, if receivables continues to increase, that means that the company has money that it has not collected yet (outstanding dues). The final important aspect of this formula is the total number of sales. The total number of credit sales refers to the total number of sales made as a whole. It makes sense for this number to be the denominator of this formula because of the fact that the total number of sales acts as a success indicator as a whole.

DSO & Accounts Receivable

At the end of the day, as the Daily Sales Outstanding formula yields lower figures, the organization continues to collect the money owed to them. This is what makes the recording period so important. When introducing the number of days in the recording period into the equation, translate the overall success of the company into the timeline of the collecting period. Using the Daily Sales Outstanding formula, the company can determine the outstanding balance of returns that they are owed on a daily basis.
Additionally, you can compute the Daily Sales Outstanding formula in two very similar ways. The first method is the one that is listed above, using the average accounts receivable. The other method takes the overall accounts receivable instead of the average. Many companies use the average accounts receivable because it gives a more accurate picture of the company’s performance.
If you want to reduce your DSO, download our free A/R Checklist to see how simple changes in your A/R process can free up a significant amount of cash.
daily sales outstanding formula
[box]Strategic CFO Lab Member Extra
Access your Cash Flow Tune-Up Tool Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
daily sales outstanding formula

ARTICLES YOU MIGHT LIKE

The Struggles of Private Company Accounting

Hiring the right accountant  When I meet a business owner operating at a successful $10 million in revenue, they often mention, “My CPA”… I immediately know that CEO/Entrepreneur is referring to their Tax CPA.  That is because one thing that all Entrepreneurs have in common is that they must file a tax return.  So, from

Read More »

What the Current Hiring Process Costs

It’s hard for companies to realize how much they are actually spending when it comes to hiring a new employee. Once they decide it’s time to pursue a new worker, a lot of resources are used to find the perfect candidate for the job. Finding the perfect candidate within a vast number of people might

Read More »

When You Know It’s the Right Hire

Hiring is an important aspect in a company’s development. When you know it’s the right hire, it can benefit the company in countless number of ways, such as saving money, increasing productivity, and improving employee morale. However, when done incorrectly, it can damage the company significantly. A company should always be able to determine whether

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

September 12-15th 2022

Days
Hours
Min
SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ WORKSHOP SERIES

Strategic CFO™ Financial Leadership Workshop
The Art Of The CFO®

Days
Hours
Min

December 5-8th, 2022