Comments on: The DSO Calculation (Days Sales Outstanding)

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).

By: Joshua Burnett

Joshua Burnett — Mon, 31 Aug 2009 21:18:47 +0000

@Ken, DSO doesn’t take into account what is paid against past due receivables vs current receivables. DSO is just the average day it takes to get paid at a point in time. For a measure of effectiveness take a look at the CEI calculation here http://www.greenbill.com/2009/03/collection_effectiveness

By: Mohammad

Mohammad — Mon, 10 Aug 2009 03:41:37 +0000

When using this formula the AR will include the GST portion as it would include the total receivables from the customer who when invoiced was also invoiced the GST and would pay for the same too. My question is should the invoiced sales for the period include the GST portion or not?

By: Ken

Ken — Wed, 10 Jun 2009 13:13:03 +0000

As cash is received, how are you determining if it is cash toward Credit/Invoice Sales or against the past due receivables? In your example, you are deducting $100.00 from Credit/Invoice Sales (new invoices)

By: Are you collecting your invoices effectively? | Greenbill

Are you collecting your invoices effectively? | Greenbill — Mon, 30 Mar 2009 01:54:25 +0000

[...] an earlier post I talked about calculating your DSO. The most well know way to benchmark your A/R is by using the Days Sales Outstanding (DSO) [...]