Working towards a DSO that is as close as possible to your Best Possible DSO should be the goal of your department to have a healthy cash flow and ensure your AR management is as efficient as possible. In this case, you have a lot of potential for improvement between the Standard DSO of 57 Days and the Best Possible DSO of 28. Using the above numbers, if your Current A/R is $800,000, your Best Possible DSO comes out to 28.
However, for a simple example, suppose that your AR totals $1,600,000, and Credit Sales for the last twelve months were $10,200,000, the formula would beĭSO = Total A/R ÷ Total Credit Sales X 365, and the answer a DSO of 57.2 days.īest Possible DSO uses only your current (not yet past due) receivables and tells you what your best “on-time payment” turnaround could be.īest Possible DSO = Current A/R ÷ Total Credit Sales x 365. Depending on the industry and seasonality, DSO calculations can get complicated. That is, how long it takes to collect payments based on the invoice date, intending to reduce your DSO to as close as possible to your average terms of sale (the “Best Possible DSO” or “Best DSO”). Standard DSO is the metric for tracking the effectiveness of Invoice Collection Management. Days Sales Outstanding (DSO) and Best Possible DSO In addition, businesses have become more complex, so performance analytics are essential to keep track of the financial health of your receivables. Understanding DSO, DDO, and KPIs For Managing Accounts ReceivableĪ/R turnover – the credit-to-cash cycle – and working capital are critical to your business, so it is essential to monitor the Key Performance Indicators (KPIs) and other metrics that track your company’s credit, collections, and deduction management health.
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