Lean Strategies International
Menu

Glossary

Would you like to add a term to the community? Click Here!

Days Sales Outstanding

5/12/2022

0 Comments

 
Days Sales Outstanding DSO
Click on the Photo to Subscribe to Our YouTube!
​  Days sales outstanding or DSO as it is often called, is a ratio that measures the average number of days a company takes to collect its accounts receivable. When a company's DSO is short, it tells us that the company is faster at collecting payments from customers.  ​This also means you are able to use the cash from sales sooner.
Click Here to Subscribe to Our YouTube Channel.
When combined with days payable outstanding and days inventory outstanding, DSO is a component of the cash conversion cycle.
Days Sales Outstanding
Click on the Photo to Subscribe to Our YouTube!
Example:
If a company has credit sales of $1.5 million over the course of a year and an accounts receivable balance of $150,000, we would calculate the DSO by:
  1. First multiplying our accounts receivable of $150,000 by the number of days in our period, which in this case is one year or 365 days. 
  2. Next, we divide this answer by the total sales due to be paid on a future date.  Which are known as credit sales.  In our case we divide 54,750,000 by $1,500,000. 
  3. This would give us a DSO of 36.5 days.
What does the Output tell Us?
  • To start you should know that a high DSO can be dangerous.  It indicates a company is selling lots of products on credit and is taking a longer than normal time to collect payments for the sales from customers. This will eventually result in cash flow difficulties.  On the other hand a low DSO tells us that the company is collecting payment from its customers quite rapidly.  And, as we all know, getting paid quickly is important.  Be aware that DSO can vary quite a bit in different industries.
 How can we improve DSO?
  • DSO is unique in the sense that you have so much information that can be improved.  With that said, mapping your receivable or collection process out and removing waste can improve both the information side of the value stream and the material side of the value stream. 
  • Another way to improve your DSO is by automating parts of the collection process.  For example, electronic invoicing is much quicker than mailing and faxing.  Also, many systems will now automatically guide quotes to PO’s and PO’s right into invoices.  This makes the information side of the process much more efficient. 
  • Another very common way that companies can improve DSO is by giving your customers incentives to pay early.  For example, a 2/10 net 30, means that the buyer receives a 2% discount if they pay the invoice within 10 days instead of within 30 days. 
Click Here to Subscribe to Our YouTube!
0 Comments

Your comment will be posted after it is approved.


Leave a Reply.


    Glossary


    Subscribe below and receive lean, six sigma, operations, supply chain, logistics, distribution and business terms in your mailbox.

    CLICK HERE TO SUBSCRIBE

    Categories

    All
    #
    01. Add A Term
    3D
    3PL
    3P's
    5 Principles
    5S
    5 Why's
    6σ
    8 Wastes
    A
    B
    C
    D
    E
    F
    G
    H
    I
    J
    K
    L
    M
    N
    O
    P
    Q
    R
    S
    T
    U
    V
    VSM Shapes
    W
    X
    Y
    Z

    Archives

    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    May 2020
    April 2020
    March 2020
    November 2019
    October 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    March 2018
    February 2018
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    November 2015

Lean Strategies International LLC.
Follow Us on YouTube or Our Other Channels Below.
             ©2015-2021 Lean Strategies International LLC.  
  • Home Page
  • Services
    • Training >
      • Waste Training
      • Introduction to Lean
      • Lean Champions >
        • Lean Six Sigma White Belt
        • Lean Six Sigma Yellow Belt
      • Lean Tools You Can Use Series! >
        • The 5S System
        • The ©Gemba Methodology
        • The FISH Methodology
        • The CURE Methodology
        • Quick Changeover with REDUCE
        • Mistake Proofing and the Poka Yoke System
        • The Just in Time System
  • Lean Resources
    • Listen to The Gemba
    • Glossary
    • Lean and Six Sigma Quotes
    • Recommended Reading
    • Events
    • Masters of Lean and Six Sigma
    • Career /Jobs
  • Store
    • Workspace
  • Home Page
  • Services
    • Training >
      • Waste Training
      • Introduction to Lean
      • Lean Champions >
        • Lean Six Sigma White Belt
        • Lean Six Sigma Yellow Belt
      • Lean Tools You Can Use Series! >
        • The 5S System
        • The ©Gemba Methodology
        • The FISH Methodology
        • The CURE Methodology
        • Quick Changeover with REDUCE
        • Mistake Proofing and the Poka Yoke System
        • The Just in Time System
  • Lean Resources
    • Listen to The Gemba
    • Glossary
    • Lean and Six Sigma Quotes
    • Recommended Reading
    • Events
    • Masters of Lean and Six Sigma
    • Career /Jobs
  • Store
    • Workspace