Source: The benchmarking information provided here within the Atradius DSO Calculator is proved by the Credit Research Foundation, Westminster MD.
Days Sales Outstanding
Like most accounting metrics, Days Sales Outstanding (DSO) should be calculated more often than once a year. The more data you collect over time, the more accurate your DSO average will be.
You will want your DSO to be as close to your payment terms as possible. For example, if your company has a 90-day payment policy, you will want your DSO to be as close to 90 as possible.
There are different DSO benchmarks depending on the industry. Industry averages can play a role in determining the DSO. A good number for one industry may mean trouble for another.
As a business owner, it is important to understand the DSO parameters for your industry and to keep those in mind when calculating your DSO. If your business is collecting payments from invoices quickly and your DSO is close to your payment terms that are within the industry average, you know you are on the right path.
Closely monitoring your DSO can help you avoid cash flow issues. This is where trade credit insurance can give you the peace of mind that you will meet your financial obligations, even if your customers are delaying payments. Additionally, if you have a seasonal business, keeping a close watch safeguards long-term continuity.
If cash flow issues arise, your company should review existing payment terms. Tightening these terms helps customers pay in a timely manner, alleviating your cash flow concerns.
If you found our DSO Calculator useful, check out some of our FAQ pages focused on DSO.
About Credit Research Foundation
Incorporated in 1949, the Credit Research Foundation is an independent non-profit consisting of a dynamic community of like-minded senior/executive business professionals with a vested interest in maintaining a competitive advantage in the disciplines and processes related to credit and accounts receivable management. CRF is widely recognized as the foremost educational and research organization dedicated to the credit, accounts receivable and financial management community. The foundation provides access to education, research, best practices, and dynamic solution sets through multiple distribution channels.
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