The formula for calculating days sales outstanding or DSO is as follows:
(Average Accounts Receivables ÷ Net Credit Sales) * Number of Days) = DSO
DSO measures the number of days it takes to convert sales made on credit to cash. Companies use this metric to measure collection efficiency and help forecast cash flows.
Net Credit Sales refers to all sales made on credit minus returns and allowances. The number of days refers to the time period measured.