The Formula for Days in Accounts Receivable

The formula for Days in Accounts Receivable, also known as Days Sales Outstanding (DSO), is calculated by dividing the average accounts receivable by total credit sales and then multiplying the result by the number of days in the period. This metric measures the average number of days it takes for a company to collect payments from its customers after making a sale. A lower DSO signifies faster cash conversion and effective credit management, while a higher DSO may indicate delayed payments and potential cash flow challenges.