Days Sales Outstanding DSO
On average, how many days it takes to collect cash after making a sale.
The fork, why two teams get different numbers
Three live disagreements. (1) Revenue base, total revenue vs credit-only
revenue; a business with heavy cash/prepaid sales gets an artificially high DSO
if total revenue is used in the denominator but only credit sales generate AR.
(2) AR base, ending AR vs average AR (beginning+ending)/2; seasonal businesses
swing wildly between the two. (3) Method, the simple ratio vs the "countback"
(exhaustion) method that peels AR against actual recent monthly revenue.
Treasury, FP&A, and the auditor can each quote a different DSO for one quarter.
The trap
DSO computed on a period-average AR over a seasonal or fast-growing quarter is distorted: rapid growth pushes ending AR far above the period's average revenue run-rate, inflating DSO and mimicking a collections problem that doesn't exist.
- The full trap, worked on a real export
- Every formula variant, spelled out
- The reconciliation anchor, what to tie it to and when to refuse
Reference: FASB ASC 310 (Receivables) · standard credit-management practice