Days sales outstanding measures the number of days it takes a business to collect cash from sales made on credit. The value shows the efficiency of the business’ collections department. It is also called the average collection period or days sales in receivables. The formula is: Days sales outstanding = accounts receivables / total credit sales x number of days. For example, assume in January that a business made $450,000 in sales and had $300,000 in accounts receivables. The number of days in January is 31, so the days sales outstanding is: $300,000 / $450,000 x 31 = 20.67 days. The lower the value of days sales outstanding, the faster the company is collecting the amounts due on credit sales.
Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.