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What's Your DSO?

 

If your business grants credit to customers, then you will carry 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 your DSO:

DSO = Accounts receivable balance / Annual net credit sales * 365.

DSO is measured in days and it represents how long it takes for you to collect customer invoice balances and convert it to cash.

Here are some tips to reduce DSO: 


1. Invoice Clarity

Make sure your invoices are accurate and clear. Make it clear who the check should be made 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. 

2. 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. 

3. 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. 

What’s your DSO? If you need help calculating it or advice as to how you might speed up your collection process, please don’t hesitate to give us a call.

About the Author - Greg Nicoll joined ECS Financial Services in 2011 after receiving his Bachelor of Science in Accountancy in 2009 and his Master of Accounting Science degree in 2010 from the University of Illinois at Urbana Champaign. After receiving his CPA certification in 2015, he was promoted to Supervisor in January 2016. Mr. Nicoll's areas of expertise include audit, review and compilation engagements, and related financial statement preparation, as well as multi-state sales tax compliance services. He also offers experience in business and personal income tax preparation.

About the Author - Greg Nicoll joined ECS Financial Services in 2011 after receiving his Bachelor of Science in Accountancy in 2009 and his Master of Accounting Science degree in 2010 from the University of Illinois at Urbana Champaign. After receiving his CPA certification in 2015, he was promoted to Supervisor in January 2016. Mr. Nicoll's areas of expertise include audit, review and compilation engagements, and related financial statement preparation, as well as multi-state sales tax compliance services. He also offers experience in business and personal income tax preparation.