Calculating your days sales outstanding can be a difficult chore in itself, but after you've heard the theory it still requires you be able to put it into practice in your accounting package to make it actionable. Today we'll quickly cover the basics of calculating DSO or days sales outstanding and then we'll move on to a practical example inside Quickbooks online. So let's get started:
What is DSO again?
So you've heard this one before, it's really the amount of time your invoices are outstanding and not being paid after you send them out to customers. Simple right? But how to calculate such a number on a company wide basis?
So lets take the last month you were in business as an example because you need some kind of time frame. You can do this for a month, a quarter, a year, it doesn't matter it all works, but for our days sales outstanding example lets take one month (30 days to be exact). So then take that number and divide it by the total amount you invoiced. They call this credit sales in general which I suppose makes logical sense, but has always been confusing to me. Just call it what it is, invoiced amounts.
So lets say we invoiced $24,000 last month, that would be our total "credit sales". Now we need the total amount of the $24,000 that ended up in our receivables during the period. Once we have this number we can calculate days sales outstanding. So lets say we ended up with $20,000 is our receivables. Just take (20,000/24,0000)/30 and we get 25 or 25 days. This is our DSO. Now to break that down into plain terms this means it took us on average 25 days to collect money owed us during a period. This of course is an ideal number and probably not what you got. Now how do we calculate this in Quickbooks?
Quickbooks DSO Calculation
First you need to get a list of the invoices you had during that period:
And that's it your days sales outstanding! Okay I know that was pretty painful. Now that you've done that report gymnastics trick it's time to actually use this data in your business. The goal is to make this number go down.
We have a lot of other blog articles discussing how to lower your days sales outstanding we hope you'll check out. InvoiceSherpa was actually created to do just that, if you want to automate this whole process and automatically lower your DSOs let us know we would be happy to help!
Posted on January 23, 2014
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