THE IMPORTANCE OF CALCULATING THE DSO FOR BETTER ACCOUNTABILITY

The DSO is a crucial system a company relies on for deriving a better accountability and  this would help to render an organization to operate with smooth flow between the company and its clients. It is also very important a company knows how to calculate the DSO in order to derive an organized accountabily, this can be achieved with the use of the  right formula.

HOW IS THE DSO REALLY CALCULATED?

It is important to know that for a company, it is good to a have a low DSO (Days Sales Outstanding). Why? This is because the lower the DSO of a company the better the growth of the company and this promotes proper accountability. Whereas, if a company experiences a high DSO, this can lead to the downfall of the company because this would indicate that it takes clients way too long to pay up on invoices. Therefore, the company is required to know <how to calculate dso in order to avoid this from happening. Calculating the DSO means the company intends to get the average number of duration it take account receivable to become cash.The formula for calculating DSO is:

Dso= receivable/net credit sales X Sales.

This means, the DSO gotten by dividing the overall net credit sales from the total receivable trade of a specific time. Lastly, the amount derived from that is multiplied by a given number of days of that particular time period.

THE METHODS TO IMPROVE THE DSO OF A COMPANY

A company must practice to always ensure the DSO value should be maintained at a low frequency, for that signifies that its customers require a short time to make payment on invoices. Thus, the following methods should be applied to improve the DSO;

  • The company should ensure they make effort to collect money in advance.
  • The company should create a strict payment terms.
  • There should be a high maintenance of a recurring payment option.

All these when put in place and properly followed up, would ensure that the DSO value remains at it's peak for better growth of the company's accountability.