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What’s Your DSO?

8/24/2016

 
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If you grant credit to customers, then you have a balance in accounts receivable. 

​DSO stands for Days Sales Outstanding, and this helps you measure how fast your receivables are being converted to cash.  

Here’s how to calculate it:  
DSO = Accounts receivable balance / Annual net credit sales * 365. 
 
DSO is measured in days and it represents how many days it takes to collect the customer invoice balance and convert it to cash.
 
Whether the DSO measure is “good” or not varies by industry as well as the terms you’ve set for your clients.

If you’ve set your invoices to be due in 30 days and your DSO is 45 days or less, that’s pretty good.

If you’ve set your invoices to be due in 10 days and your DSO is 60 days, then you might want to consider a more aggressive collection policy to speed up your cash flow. 
 
Here are some tips to reduce DSO:

Invoice clarity 

Make sure your invoices are accurate and clear. Make it clear whom to make the check out to, where to mail it, the due date, and the amount due. All of these features should be easy to find on the invoice.  

Consider discounts 
​
A common discount term is 2/10, net 30.  This means the customer can take two percent off their invoice if they pay in 10 days; otherwise they owe the whole amount in 30 days.

If you have customers from large companies, discounts are often required by policy to be taken and this can speed up your payments from them.  

Consider electronic payments
 
Going paperless with your invoicing as well as your payment process can speed up the entire billing cycle.  Customers getting their bills earlier will also pay earlier. 
 
So, what’s your DSO?   


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    Author

    Successfully meeting the challenges inherent to new and smaller businesses provides me with a special type of satisfaction. 

    Supporting businesses that have the potential to become amazing – from both the perspective of owners and team members as well as their clients – is what I enjoy. 

    I hope to use this blog to provide information specific to businesses that are growing from small beginnings into exceptional companies.

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  • Home
  • Why Us?
    • Reviews
    • Open Positions
  • Client Services
  • Resources
    • Save on QBO Subscriptions!
    • Tax Refund Status
    • Gusto Year End Checklist
    • Videos >
      • Business Taxes >
        • 2019 Business Tax Highlights
        • 7 Ways Small Business Can Save On Tax
        • Taxes for S-Corp Owners
        • The IRS Loves Businesses
      • Personal Taxes >
        • 2019 Tax Highlights
        • Five Yearly Tax Essentials
        • 4 Common Tax Surprises
        • Retirement Can Be Taxing
        • Advance Child Tax Credit Reconciliation - 2022
        • Make the Most of Your Donations
        • Five Great Tax Secrets
        • Renting Your Property Tax Free
        • Ideas to Audit-Proof Your Tax Return
      • The Tax Cuts & Jobs Act >
        • The Tax Cuts & Jobs Act: What You Need to Do Now
        • The Tax Cuts & Jobs Act: Are Itemized Deductions A Thing of the Past?
        • The Tax Cuts & Jobs Act: The New Child Care Tax Credit
      • Tax Topics >
        • Tax Season is Coming!
        • The New World of Deductions: What Everyone Needs to Know
        • Proving Your Deductions
        • How to Fix a Mistake on Your Tax Return
        • How Long Should I Save It?
        • Tax Credit vs Tax Deduction
        • Understanding Effective Tax Rate
        • Understanding Marginal Tax Rate
      • Life Events >
        • Life Events: A New Birth
        • Life Events: Marriage
        • Life Events: Divorce
    • Articles >
      • Accounting & Bookkeeping >
        • How to Get the Most Out of Your Accounting Fees
        • The 10 Biggest Money Leaks in Your Accounting System
      • Business Factors >
        • IRS Rules for Classifying Workers
        • Checklist for a Healthy Cash Flow
        • 12 Ways to Improve Your Business Profits
        • 10 Step Annual Business Check-Up
      • Tax Topics >
        • Tax Guide for Self-Employeds
        • 15 Things Every Tax Payer Should Know
        • Disaster Casualty Losses
        • Travel & Entertainment Deductions
        • Tax Guide - A Deduction Checklist
        • What You Should Know About Tax Audits
    • Newsletters >
      • Newsletters - Monthly Editions >
        • Newsletter - Monthly Edition
      • Newsletters - Quarterly Editions >
        • Newsletter - 2019 Fall/Winter
        • Newsletter - 2019 Spring/Summer
    • How To's >
      • How To - Dext
      • How To - BILL
  • Blog
  • Appointments
    • Client Consultations