How to calculate your Days Sales Outstanding (DSO)

Your current days sales outstanding (DSO) is calculated by dividing the total amount owed to you by your sales per day. Your sales per day is calculated by dividing your annual turnover on credit terms by 365, the number of days in the yea

e.g. To calculate the Sales per Day (when annual turnover is £1,000,000):

£1,000,000 divided by 365 equals 2739.7

To calculate DSO (based on example above and when amount owed is £10,000)

£10,000 divided by 2,739.7 equals 3.65

Your reduced, improved DSO is calculated by multiplying the total amount owed to you by the percentage improvement in your collections activity (say 10 to 20%) and then taking the resultant figure away from the total amount owed to you before repeating the above calculation.

The increase in your cash flow is calculated by multiplying the total amount owed to you by the percentage improvement in your collections activity.

The reduction in the cost of your borrowing is calculated by multiplying the increase in your cash flow, above, by the percentage interest rate for borrowing money (say 5%).