You can work out if your business has overdue debt issues by working out your Days Sales Outstanding (DSO). This is an important indicator of cashflow issues, and when applied regularly can highlight problems before they become too serious.
In order to do so you need two figures:
- Current debt outstanding (D)
- Gross annual turnover – including VAT (T)
Then apply the following formula
(Debt ÷ Turnover) x 365 = DSO
Debt outstanding = £125,263
Gross turnover = £400,572
£125,263 ÷ £400,572 = 0.3126
0.3126 x 265 = DSO = 114 days
If your DSO is 30 days higher than your average payment terms, then some of your customers are taking liberties or are being allowed to pay late. Which is it?
If your DSO is 60 days higher than your payment terms, then the cashflow of the business is being massively affected and could cause issues if not addressed.
How can we help?
Credebt are the experts in Credit Control and we know how to help businesses improve their cashflow.
If you would like to talk to someone about reducing your DSO, we are happy to give lots of free advice, so please feel free to contact us.
Call us on 0845-6385256 or email email@example.com