The higher the DSO, the longer it takes the business to collect on its receivables. This business, on average, takes 36.5 days to collect on its receivables. This metric is calculated by dividing a business's accounts receivable by its sales, and then multiplying the result by 365.įor example, let's say a business has total sales of $100,000 and accounts receivable of $10,000. What is Days Sales Outstanding?ĭays sales outstanding (DSO) is a metric that measures the average number of days it takes a business to collect on its receivables. The lower the receivables turnover ratio, the longer it takes the business to collect on its receivables. This business, on average, takes 10 days to collect on its receivables. The receivables turnover ratio would be calculated as follows: The resulting number is then multiplied by 365 to get the number of days it takes, on average, for the business to collect on its receivables.įor example, let's say a business has total sales of $100,000 and an average accounts receivable of $10,000.

This ratio is calculated by dividing a business's total sales by its average accounts receivable. The accounts receivable turnover ratio (also known as the receivables turnover ratio) is a metric that measures how effectively a business is collecting on its receivables. What is the Accounts Receivable Turnover Ratio?

In this article, we'll take a closer look at the accounts receivable turnover ratio and DSO, and explain the key differences between them. While these two metrics may seem similar at first glance, they actually measure different things and provide different insights into a business's financial health. Two of the most important metrics in this area are the accounts receivable turnover ratio and days sales outstanding (DSO). When it comes to managing a business's finances, it's important to understand and keep track of a variety of different metrics.

Days account receivable turnover