Definition of Days Sales Outstanding
Days sales outstanding is a period in days that a company takes to collect payment from its credit customers. The shorter this period means that lesser a company takes time to collect from its customers. It is calculated by using the following formula.
Assume a company has a balance of accounts receivable of $500,000 and a credit sales of $1,250,000. The average time to collect the payment from its customers will be.
This ratio also tells how efficient a business’s collection system is and it can be compared with the industry average to see how well is company performing in the same industry.
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