Answers the Question
How long does it take us to get paid?
Calculator for Days Sales Outstanding
What Is the Days Sales Outstanding?
The days sales outstanding is an estimate of the delay between the time at which a unit of inventory is purchased and the time at which the vendor receives payment.
Why Is it Important?
- The longer the days sales outstanding, the greater the risk that a vendor must bear. Not only is the vendor forced to deal with liquidity issues (either by taking out revolving lines of credit or investing less in productive ventures), but he must also absorb an increasing likelihood that buyers will forgo payment.
Formula(s) to Calculate Days Sales Outstanding
- DAYS SALES OUTSTANDING = ACCOUNTS RECEIVABLE / AVERAGE SALES PER DAY
- Many businesses sell different amounts of inventory at different times. For instance, many vendors see a boost in sales just before Christmas. This clumping of sales is not reflected in days sales outstanding. As a result, some firms may find themselves overextended if they rely only upon this ratio.