Days Sales Outstanding (DSO) is a financial metric that measures the average number of days a company takes to collect payment after a sale is made. It reflects the age of a company's accounts receivable and indicates how efficiently a company manages its credit sales. DSO is essential for assessing a company's cash flow and overall financial health.
DSO is commonly used in financial analysis and reporting, particularly in corporate finance and accounting. Legal professionals may encounter DSO when reviewing contracts that involve credit terms or payment schedules. Understanding DSO can help in negotiations and in evaluating the acceptability of payment terms in various agreements.
Here are a couple of examples of abatement:
For instance, if a company has total receivables of $100,000 and total credit sales of $400,000 over a 30-day period, the DSO would be calculated as follows:
DSO = (100,000 / 400,000) x 30 = 7.5 days.
(hypothetical example)
| Term | Definition |
|---|---|
| Accounts Receivable | The total amount of money owed to a company by its customers for goods or services delivered. |
| Collection Period | Another term for Days Sales Outstanding, focusing on the time taken to collect receivables. |
If you are a business owner or financial manager, regularly monitor your DSO to ensure efficient cash flow management. Consider using financial software or templates from US Legal Forms to help analyze your receivables and improve your collection processes. If your DSO is consistently high, you may need to reassess your credit policies or seek professional advice.
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A good DSO varies by industry, but generally, a lower number indicates better performance in collecting receivables.