Did you download the T & E white paper from Saturday’s post?
On the FAO side, we were discussing DSO or Days Sales Outstanding.
There is another school of thought, which uses a different approach.
A measure of the average number of days that a company takes to collect revenue after a sale has been made. A low DSO number means that it takes a company fewer days to collect its accounts receivable. A high DSO number shows that a company is selling its product to customers on credit and taking longer to collect money.
Days sales outstanding is calculated as:
This procedure somehow has not gained wide acceptance.
However, days sales outstanding is not the most accurate indication of the efficiency of accounts receivable department. Changes in sales volume influence the outcome of the days sales outstanding calculation. For example, even if the overdue balance stays the same, an increase of sales can result in a lower DSO. A better way to measure the performance of credit and collection function is by looking at the total overdue balance in proportion of the total accounts receivable balance (total AR = Current + Overdue), which is sometimes calculated using the days delinquent sales outstanding (DDSO) formula.
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