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How to Calculate Your Days Sales Outstanding in Quickbooks (Calculator)

Why is DSO important?

Every business runs on cash and the ability to collect your account receivables (AR) as soon as possible will increase your company’s efficiency and profitability. Failing to evaluate your DSO can lead a stellar performer to a nickel-and-dime operation. So let's look at why it’s so important.

Let’s say you have a total amount of $35,000 in AR and your DSO is 125. From the day you’ve sold your product or service it takes an average of 125 days for you to receive the amount. The higher your DSO the longer it takes for you to receive the payment you can use to pay your lease, payroll, credit card or any other expenses for your business.

How to Calculate Days Sales Outstanding (DSO)

So, how do we calculate days sales outstanding you may ask? Simple, to calculate your dso ratio, divide your average AR by your annual credit sales and divide it by the number of days.

Suppose you want to calculate the DSO for a specific date range and on July 1st your AR is $35,000 and August 1st your AR is $45,000. Your average AR would be $40,000.

Next is calculating the total credit sales. During July 1st to August 1st how much (in $ worth) product or service did you provide? Let’s assume this amount to be $80,000.

The last part is the number of days between July 1st to August 1st - 62 days.

DSO Calculator & Formula

DSO = (Average Account Receivables / Total Credit Sales) * Number of Days

For the example above the equation will look like;

($40,000 / $80,000) * 62 days = 31 days

Try it for yourself below by plugging in your own numbers.

Calculating DSO in Quickbooks

If you’re using Quickbooks just follow these 7 steps to calculate the DSO in just a few clicks.

  1. First select “Reports”
  2. Under Reports choose “Sales” –> “Invoice List”
  3. Set the date range you want to calculate DSO for and run the report
  4. You should see something that looks like this
  5. Now you have your invoice list for that period, you can add up the total invoiced during that period, do this and write that number down.
  6. Now the trick is how do you know if an invoice was paid it was paid in the period we care about? The short answer is that you need to drill down into each invoice and see when the payment were made to determine this, a pain I know.
  7. So now you should have the total “credit sales” or total amount invoiced, the payments on those invoices in that period and you calculate the number of days.

How to improve days sales outstanding ratio

By now, I’m sure you’re fully aware that a lower DSO is better than a high DSO. So, let’s look at some simple steps to help you get that DSO to a manageable number:

If you’re still unsure how you can improve your process to decrease days sales outstanding for your business don’t hesitate to reach out to one of our InvoiceSherpa experts!

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Posted on October 26, 2020

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