Days Sales Outstanding DSO 

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BEWARE OF VARIABLES AFFECTING THE CALCULATION OF DSO: from1st- to 8th variables depend on factors unrelated to the payments, but you can take steps to eliminate or reduce the incidence from 8th- to10th variables depend on factors unrelated to the payments, but you can NOT attend to reduce the incidence the 11th variable is the only variable is valid to measure improvements or deteriorations in the trends payments 1st VARIABLE IMPACT OF VAT the billing information and credit exposure that are detectable from the accounting records and / or the financial statements, but while revenue is net of 'tax, the credit exposure includes the' VAT, the two figures are not comparable and therefore the calculation of the DSO would be wrong if you do not intervene on he given exposure in account receivables by deducting the 'VAT (or adding VAT to sales) enough to homogenize the two figures by removing the VAT credit exposure or by adding it to the turnover 2nd VARIABLE METHOD OF DETECTION (BACKTRACK OR MOBILE PERIOD) the detection method used for calculating the DSO impact differently on the same result. just keep the same method of calculation, back track, rolling year, semester Mobile, Mobile quarter. 3rd VARIABLE TERMS OF PAYMENT if the terms of payment of all or part of the bills in issue are also changed the DSO will be modified accordingly; Also slippage August deadline (and December too), which is often granted automatically or on request, amend the DSO enough to detect it and take it into account 4th VARIABLE CALENDAR YEAR OR COMMERCIAL YEAR if we consider the business year of 360 days instead of the solar year of 365 days and consequently all the months of 30 days, using the calendar year with the DSO back track method is changed due to the daily turnover (in the formula is different if you use 30 or 31 or 28 days) enough to detect and take into account the difference in the calculation 5th VARIABLE LEGAL, COMMERCIAL DISPUTES, INTERCOMPANY must be included in the calculation practices to legal, commercial disputes, the intercompany? enough to detect it and take it into account 6th VARIABLE PERIOD OF SURVEY if we consider the exposure at the end of a quarter, for example, in February March and April, the sum of the months considered is (28 +31 +30) = 89; if we consider another quarter, for example June July August months in the sum of the consideration is (30 +31 +31) = 92; This structural difference between the two surveys is already of (92-89) = 3 days enough to detect and take into account the difference in the calculation 7th VARIABLE TERMS OF PAYMENT CONDITIONS WITH END OF THE MONTH with the condition of payment at the end of the month, actual days will be agreed will be greater if the billing date will be in early the month compared with a billing date near the end of the month. And, in addition, an amount which shall expire at the end of the month exactly the same day of collection shall be deemed to have expired or not expired? enough to detect it and take it into account 8th VARIABLE RECEIVED THE BANK AND THE EFFECTS IN CIRCULATION about a month before the deadline or even more, the RIBA (and effects i.e. draft) are removed from the account receivables to banks and sent for collection; sometimes the effects are sent to off long ago. Proper operation ..... but we need to keep the amount in the accounts receivable as yet NOT paid and / or AT attracting risk .... not always the case for the calculation of DSO Simply enter in the calculation also riba and currency or discount 9th VARIABLE PAYMENTS DURING THE MONTH the detection of the DSO is generally done at the end of each month, but it is a flash relative to a given time and DO NOT take into account if a payment was recorded at 3 or 16 or 29 of the same month of the previous month ...... 31 resulted expired and NOT paid while 31 of the month in which the payment is done by calculating the DSO is irrelevant the date on which occurred the same payment; 31 of the month the amount paid is removed from exposure and just; improvement or deterioration in the month is NOT detected It's not allowed any intervention 10th VARIABLE THE IMPACT OF CHANGES IN SALES IN THE CALCULATION OF DSO the proof is a bit 'complicated and therefore postponed to an EXCEL sheet Exemple: detection at 31/12, backtrack method, calendar year, payment terms to 60 days, turnover 100,000 / month, payments 50% at sight, 50% after 30 days ….. DSO = 92.00 days Change only the October sales of 40,000 ….. DSO = 101.00 days Then change only the October turnover in 140,000 …. DSO = 87.57 days It's not allowed any intervention 11th VARIABLE at last the only variable that the DSO should be measured as a direct result of deterioration or improvement in payments ... I refer you to an EXCEL spreadsheet for the demonstration It should only attend on payments!! And this depends on the credit management CONCLUSION: The DSO takes into account the unpaid overdue bills and invoices to expire, but ignores the invoices paid late. DO NOT measure so its improvements and deteriorations of the period due to the action of credit management. The measurement ALSO suffers the influence of variables that do not depend on the turnover of receivables and may lead to erroneous assessments. I think that this is enough to NOT believe the DSO reliable for the measurement of the trend of payments One of the fundamental limitations of the DSO (and, therefore, the turnover of receivables) derives from its dependence from fluctuations in sales and the period required for the calculation of the daily turnover on credit. Such dependence causes that often are reported improvements or deteriorations in the activity of collecting, even in the presence of a stable performance of payment from customers. Sometimes, however, these measures may not indicate that the situation is changing ... I use another method called GPS Giorni Ponderati di Scaduto in italian or WADL Weighted Average Days Late in english ...

Also make video about days payables outstanding?

Where did you come across the term DSO? Let me know by commenting below!

It's very thoroughly explained, helpful.

Wonderful Explanation..Thanks

Thank you for both describing the formula and how to use it

Simple and genius , as usual!

Thank you, excellent video !

Very well explained with examples. Thanks for sharing the valuable information 😊

But on some website the denominator of this formula is -total credit sales, instead of total revenue. What's your view about it?

Thank you very much for this video.

Great explanation!!

I liked the DSO Analysis and improvement

Very well explained, thanks

if you are using 5-point average by quarters (3months) should you be multiplying by 90 instead of 360 ??

Very clear explanation.👍

Is dso legit?do you have expirience?

hi, what the numerator means ?

Good

I've a doubt, can you help me clear

Are you sure? I disagree