Comments on: The DSO Calculation (Days Sales Outstanding)

By: Joshua Burnett

Joshua Burnett — Fri, 25 Feb 2011 17:09:25 +0000

@Venkat Include anything that is invoiced on “credit” where you give them time to pay. How they pay is irrelevant, I was just giving an example.

@Sai Yes, include any sale where you invoice and give them time to pay. In your formula you divide by ” Total sales which are not overdue during that period”, it should be the “total sales for that 90 day period”

By: Sai

Sai — Mon, 14 Feb 2011 08:29:43 +0000

Hi,

If i am calculating DSO for the current month and at the end of the month if i create an invoice and it has payment term due after 30 days, do i need to consider this sale in credit sales? Each invoice may have different payment term and some invoices may not be due in the month where i am calculating DSO!

Correct me if this formula is incorrect for accurate DSO, (We are calculating DSO for 90 days)

Total receivables from the customer for the sales during that period / Total sales which are not overdue during that period X 90 days.

By: Venkat

Venkat — Tue, 16 Nov 2010 10:25:54 +0000

@Joshua,
Above statment is not clear for Me. Could you please clarify my doubt – “Any sale that is point of sale or where its to be paid right away (pos,cash and credit card sales) should be backed out or it will skew your number.” – In this statement it is clarified that Credit Card sales need not be considered, but immediately in the next statement – “Of course if they pay by credit card on an invoice then those numbers should stay in your DSO calculation” – Credit Card sale is considered. which one is correct?

By: Christina

Christina — Tue, 09 Nov 2010 23:26:35 +0000

Thanks – very helpful and easy to follow along…

By: Joshua Burnett

Joshua Burnett — Tue, 09 Nov 2010 22:49:58 +0000

@Pat, yes “credit sales” are where you invoice and extend credit terms to your customers. Any sale that is point of sale or where its to be paid right away (pos,cash and credit card sales) should be backed out or it will skew your number. Of course if they pay by credit card on an invoice then those numbers should stay in your DSO calculation

By: Pat

Pat — Tue, 09 Nov 2010 22:00:20 +0000

What is the true def. of “credit sales”. How would credit card sales be addressed. For example, the sale itself as it relates to the credit card transaction is calculated into the total for sales – but we did not actually extend credit to this type of customer. I would define credit sales as extending terms (net 30). Should credit card transactions be backed out?

By: Joshua Burnett

Joshua Burnett — Tue, 29 Sep 2009 17:23:54 +0000

@Chris, Monthly Credit Sales should be the sum of all the invoiced sales with the credit memos relating to sales backed out. You should not back out the cash received for invoices. That will get taken care in you net A/R balance. Disputes and how to handle those is a whole other blog post that I am working on but if you have a high write-off rate (you end up writing off 90% of those disputes against sales and not an expense account) and the disputes happen in the same month as the invoice then yes back them out of credit sales. Most of the companies we work with do not back out of credit sales and if they are removed at all they come out of the A/R number. example: total a/r – total disputes = “accounts receivable” that I reference in the calculation above.

By: Joshua Burnett

Joshua Burnett — Tue, 29 Sep 2009 16:34:56 +0000

I think the confusion may lie in my description above. I’m updated the post above to try and clarify some of the questions. Please let me know if it clears some of the questions up.

By: Chris

Chris — Tue, 29 Sep 2009 15:29:34 +0000

Very informative article. I still have a question about “Monthly Credit Sales”, and how to calculate correctly. Can you please confirm that “Monthly Credit Sales” should be the Sum of all invoices produced in the month not currently in dispute minus ALL cash received in that month (regardless of month of original invoice). Is this correct, or can you expand? Thanks

By: Joshua Burnett

Joshua Burnett — Mon, 31 Aug 2009 21:21:19 +0000

@Mohammad, it will wash out the average and won’t make a difference. GST would be considered a credit sale just as you the sales of your goods and services are. If you have a lot of short-payments for GST then you can consider removing them from the calculation and use DSO in conjunction with DDO (days disputes outstanding).