DSO in 3 quick steps
DSO is an acronym for Days Sales Outstanding (averaged), which in turn reflects the health of your accounts receivable. It dictates cash flow and write off, as well as providing insight into other possible business process issues.
Step #1
Yearly sales divided by current accounts receivable = Turns per Year
Step #2
365 (days in a year) divided by Turns per Year = DSO
Simple Method
Divide your yearly sales by 12 (months of the year). That is what your accounts receivable should be if your clients were paying on time, as agreed (based on 30 day terms).
- How much money is over and above the 30 day number?
- How much interest do you pay yearly against your line of credit?
Still Wish to be the Bank?
What would you do with the capital?
Pay off your mortgage? Buy a cottage? Hire a new sales personnel and grow your business?