delinquent days sales outstanding formula

To gain a better insight, you should compare your company’s DSO against industry benchmarks, plus factor in economic fluctuations and your company’s capital structure and size. Whereas a DSO of less than 30 days is a common occurrence in the manufacturing industry. For instance, receiving reimbursement from insurance companies within 40 days or less is generally seen as a positive in the healthcare industry.

In contrast, the fastest collectors usually get paid in 30 days or less.Īlthough it’s worth noting that a “good DSO” number in one industry might not be the same in another. Multiply this timeframe with hundreds or thousands of clients and your company will start to feel the pinch. Generally speaking, the lower your company’s DSO, the better it is.Īccording to a Euler Hermes study, the average DSO across 20 sectors is 64 days, with one out of every four companies waiting 88 days or longer and 9% exceeding 120 days. your DSO is too high), the subsequent lack of cash flow will stunt growth, waste further money on chasing payments and potentially damage customer relations in the process too. If you’re taking too long to settle these accounts (i.e. With every sale put on credit, there’s an outstanding balance, known as accounts receivable (AR), you need to collect. –The DSO calculation formula = (total accounts receivable / total credit sales) x number of days. –Your ideal DSO should be determined by comparing it against industry benchmarks, factoring in economic fluctuations, and your company’s capital structure as well as size. The fastest collectors will have a DSO of 30 days. –The average DSO is 64 days, while one in four companies are waiting 88 days or longer and 9% exceed 120 days. –A high DSO can result in lack of cash flow, which stunts growth, wastes valuable resources and potentially damages customer relations. In this guide, we’ve highlighted the importance of reducing your company’s DSO and included some of the most innovative solutions to help your company start securing what it’s owed more quickly and enable you to use the profits to accelerate growth. The good news is that there are several strategies you can implement to optimise your debt collection processes and reduce your DSO. If you’re generating healthy sales but it’s taking your company too long to see the fruits of its labour, your cash flow is going to dry up, fast. Days sales outstanding, otherwise known as DSO, is an essential formula for measuring how efficient a company is at retrieving outstanding payments.

Delinquent days sales outstanding formula