The higher the DSO, the longer it takes customers to pay their bills—which can be detrimental to your customer retention strategy. It’s important to look at DSO as a whole to identify trending behaviors and what you can do to combat rising DSO figures.
But personally, a lengthy DSO could mean your customers are unhappy with your company’s products or services, or that your marketing and sales teams are nurturing and closing customers who have credit or cash flow issues. Remember, an effective customer success strategy starts before the acquisition phase.
DSO is usually applied to the entire set of invoices a company indonesia mobile database has outstanding at any given time, rather than to individual invoices. You can determine DSO for a month, quarter, or year by dividing the amount of accounts receivable during a selected time period by the total credit sales during the same period. Then, multiply the result by the number of days in that time frame.
The final number equals the average number of days it takes your company to collect invoices. But for simplicity, we'll use the annual DSO formula, shown below.
Excellent formula for daily sales
Annual sales days = accounts receivableannual revenue × 365 days
Days Sales Outstanding Example
Let's say our hypothetical company had $100,000 in sales this year. Of that $100,000, $75,000 was collected. In this case, our annual DSO is 274 days $75,000 $100,000 x 365 days = 274 days and our monthly DSO is 23 days $75,000 $100,000 x 31 days = 23 days. This may be lower or higher depending on the industry you're in.