Aging Reports and DSO (Daily Sales Outstanding)
Posted by Dylan Wan on February 27, 2007
Account Receivables aging report and Daily Sales Outstanding are two metrics commonly seen in the Financial Analytics for measuring the performance of the Account Receivables, Credit Management, and Collection departments. Here are how they are calculated, who the users are, and how they may affect the business decisions.
AR Aging Reports
AR aging reports provide the status of accounts, including the credit outstanding, payment received, and payment due. It can tell you
- Which customers owe you money
- How much they owe
- How much of their account balances are pass due
Many companies run the aging reports everyday to keep an eye on the uncollected receivables. You at least should run the reports periodically such as once a month. If you are doing a monthly billing, you should run the aging reports after bills are mailed.
Aging reports show the detail breakdown of your account receivables by customers. The total balance of the report should be reconciled to the account receivables balances in your financial statement.
Daily Sales Outstanding (DSO) is a standard metric used to measure the efficiency of a credit department. It is one of the most widespreaded measures in the whole credit and collection field. The number represents how many days it is taking to collect your average customer payment.
DSO = Receivables / Average Daily Sales
A very common way to calculate the figure is by taking the total billed sales for the month, dividing that into your total Receivables figure and multiplying the answer times 30. If your business cycle is longer, you can use the average credit receivable for the last three month times 90 and then the amount is divided by the total credit sales for last three month.
Each industry has its own standards. You should benchmark your DSO performance against your industry and your local area. You can then alter your credit policy and determine your company financial needs, in terms of working capitals. If you have too much credit sales, you are basically giving your customers an interest-free loan and you may demage your own cash flow.