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Topic: Financial analysis

days sales outstanding calculator
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Days sales outstanding calculator

Days sales outstanding calculator

Reporting debtor management key performance indicators (KPIs) to those involved in the process of billing and collecting can be motivating. This in turn can shorten cash collection times and improve cash flow.

Output kpi

The debtors’ ledger module within your accounts package will include a number of basic reports which can easily be used to provide data for you to measure your chosen debtors’ KPIs.

There are essentially two types of KPI. They can be used to measure what you do: “input KPIs” or the result of what you do: “output KPIs”. The most common output KPI applied to debtor management is days sales outstanding.

Our Days Sales Outstanding Calculator uses the formula: (debtors at the end of that month/ sales in a month) x days in that month. For example, if sales for May are £150,000 and debtors £7,500, then the numbers of days sales outstanding which debtors represent for that month are (7,500/150,000) x 31 = 15.5 days.

When using the days sales outstanding calculator allocate your total current debtor balance back across the proceeding months assuming that the latest sales have not been collected yet; with the balancing figure in the oldest month.

Days sales outstanding (DSO) can vary from month to month, and over the course of a year with a seasonal business cycle. Indeed, it is also sensitive to changes in sales volume. For example, even if the overdue balance stays the same, an increase of sales can result in a lower DSO. Therefore, when analysing performance look at the trend in DSO. If DSO is getting longer, customers are taking longer to pay their bills, which may be a warning that they are dissatisfied with the company’s product or service, that sales are being made to customers that are less credit-worthy, or that salespeople have to offer longer payment terms in order to generate sales.

 

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