Sales on credit aren’t cash until they’re actually collected — this measures how long that collection typically takes.
How it works
Net credit sales divided by average accounts receivable gives receivables turnover; dividing 365 by that figure gives days sales outstanding (DSO), the average number of days customers take to pay.
Why only credit sales belong in the calculation
Cash sales were never outstanding as receivables in the first place — including them would overstate turnover and understate how long collection on credit actually takes.
How to use this calculator
- Enter annual net credit sales and average accounts receivable.
A worked example
Net credit sales of $1,200,000 against average receivables of $150,000: turnover = 1,200,000 ÷ 150,000 = 8, or about 45.625 days sales outstanding (DSO) (365 ÷ 8).
Net credit sales $900,000, average receivables $180,000: turnover = 5, DSO = 73 days.
What the variables mean
| Variable | Meaning |
|---|---|
| Net credit sales | Sales made on credit over the period |
| Average receivables | Typical outstanding customer balances during the period |
Edge cases worth knowing
A higher turnover means customers pay faster — the inverse relationship with DSO is why both numbers are shown together: turnover counts collections per year, DSO translates that into an average wait in days.
Zero average receivables makes turnover undefined — there’s no outstanding balance to divide sales by.
Frequently asked questions
Why does rising DSO matter even if sales are growing?
It can be an early sign of collection problems or looser credit terms — a business can look like it’s growing while actually accumulating cash-flow risk.
What’s a good DSO?
It depends heavily on typical payment terms in the industry — a business with 30-day terms should have a much lower DSO than one that commonly offers 90-day terms.
