….organizations that have a robust and effective Credit review and Collection process for customers and orders, will mitigate the risk of loss, as well the risk of delinquency. 088 x 365 = 32.21 DaysĪDD = Days Sales Outstanding (DSO) - Best Possible DSO (BPDSO).
The below example reflects DSO and it's two key components, BPDSO & ADD:ĭSO = Open AR / Total Sales x 365 Day. Organizations working to reduce the DSO will traditionally push for the Accounts Receivable (A/R) team to improve their collections - meaning to reduce the past due A/R and to maximize overall cash collections in order to reduce the total AR.īut wait….if one looks deeper into this combined metric of DSO (Note, DSO is a shared metric between Sales and A/R), one can better identify what is driving DSO. DSO is composed of two key components: Best Possible DSO (BPDSO) + Average Days Delinquent (ADD) = Days Sales Outstanding (DSO)
Standard accounts receivable payment terms driver#
These terms will be a key driver (if not “the” key driver) of your Days Sales Outstanding (DSO). My basis for this statement is that organizations that have a robust and effective Credit review and Collection process for customers and orders, will mitigate the risk of loss, as well as the risk of delinquency. Accounts Receivable is composed of many invoices, typically with varying payment terms.
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