FAQ

What is Best Possible Days Sales Outstanding?

The best possible days sales outstanding (DSO) is the theoretical DSO (the average days it takes to collect payment for sales) if no payments were ever late. It indicates the average best-case scenario payment cycle if all customers paid on time.

How to Calculate Best Possible Days Sales Outstanding?

Calculate best possible days sales outstanding with a DSO formula using current receivables that are not past due. 

The best DSO formula is:

Best days sales outstanding (DSO) = Current accounts receivable / Total credit sales x Number of days

For example, if your standard DSO, which is based on current and past due invoices, is 40 days, then customers usually take 40 days to pay their invoice. However, if you have a best DSO of 20 days, then your customers that pay on time usually settle invoices within 20 days of receipt. 

Why is it Important to Understand the Best Possible Days Sales Outstanding?

It is important to understand the best possible days sales outstanding because this helps you find ways to improve accounts receivable processes, which can increase cash flow. Best DSO offers insights into: 

  • Understand cash flow – DSO is a key metric for financial performance and helpful for managing working capital.
  • Make informed strategic decisions – Decide on customer credit terms and inventory management
  • Benchmark – Compare your DSO against what is the best DSO in the industry to identify improvement opportunities  

Improve Accounts Receivable management – Discover how efficient your payment collection process is. A comparison of the standard DSO and best DSO reveals the extent of payment collection efficiency. Accounts receivable automation can speed up collection efforts.

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