1. Days Sales Outstanding
D S O
Days Sales Outstanding
ADDITIONAL STUDY ASSISTANCE

2. DAYS SALES OUTSTANDING
CRITICAL SECTION
GUARANTEED TO BE IN EXAM
ALL PEOPLE IN ANY ASPECT OF CREDIT SHOULD KNOW WHAT DSO MEANS!

3. DSO
This measures the NUMBER OF DAYS WORTH OF SALES – that has not yet been paid for.
THIS IS NOT JUST based on OVERDUE DEBT – BUT ALL THE DEBTORS

4. DSO Imagine you allow 30 day date of statement terms
This means that you allow 30 days worth of sales by a customer – to be outstanding before payment needs to be made - so – if everyone paid on time - your DSO would be 30 days
IF your terms were 60 days – and every one paid on time – your DSO would be 60 days!

5. collectors performance
Therefore
We need to measure our DSO to see whether customers are paying according to terms – or not
Ie – if the DSO came out at 45 days – and we allowed 30 day terms – then customers would be paying 15 days late.
Also used to measure
collectors performance

6. collectors performance
Therefore
We need to measure our DSO to see whether customers are paying according to terms – or not
Ie – if the DSO came out at 45 days – and we allowed 30 day terms – then customers would be paying 15 days late.
Also used to measure
collectors performance

7. 2 ways to calculate DSO ACTUAL DSO – Roll Back Method
Used to measure performance of the creditors own debtors – and it’s staff
AVERAGE DSO – Average method
Usually used when ASSSESSING a potential customers financial statements when deciding whether to grant credit or not

8. We will be doing today: ROLL BACK METHOD (Actual)
The average method will be discussed later in the course when we do Advanced Credit Assessments

9. DSO Calculation example
Your debtors book total at the end of May is R
Your Sales history over the past months is:
Sold in March – R
Sold in April – R
Sold in May – R
What would your DSO be?
Lets work it out

10. DSO Calculation HOW MANY DAYS OF Sales are not yet paid for ?
R worth of sales :
May – R (31 days in May)
April – R (30 days in April)
March – R ( 31 days in March)
Therefore....this R worth of debt is equal to 92 DAYS worth of unpaid sales
The DSO = 92 days

11. What we did – we used roll back:
MAY DEBTORS TOTAL R
MADE UP OF:
MAY SALES
R DAYS
APRIL SALES
R DAYS
MARCH SALES
ADD THE DAYS = DAYS = DAYS SALES OUTSTANDING
= 92 DAYS

12. Now YOU do one November Debtors – R 80 000.00
August Sales – R
September Sales – R
October sales – R
November Sales R

13. What answer did you get?
Is this a good – or bad result?
122 days

14. compare to terms before
Good or bad result....
If TERMS are 30 days – very bad result
If Terms are 120 days.... Not bad at all
Remember..need to
compare to terms before
commenting!

15. How to show the calculation in the exam
November Debtors
Less November Sales
Less October Sales
Less September Sales
Less August Sales R
(R ) R
(R ) R
(R ) R
(R 25000)
30 DAYS
31 DAYS
TOTAL DAYS = 122 DAYS

16. Do another one November Debtors – R 185 000.00
August Sales – R
September Sales – R
October sales – R
November Sales R

17. Did you get the ANSWER
91 DAYS ?

18. Calculation November Debtors Less November Sales Less October Sales
Less September Sales R
(R ) R
(R ) R
(R )
30 DAYS
31 DAYS
TOTAL DAYS = 91 DAYS

19. Did not need August figures..
What about August?
Did not need August figures..
MEANS August Sales Are already paid for Only September / Oct & November Sales are outstanding

20. Calculate November DSO
November Debtors – R
August Sales – R
September Sales – R
October sales – R
November Sales R

21. Hit a Problem?
Do YOU HAVE ONLY R left to take off September?
Generally – ONLY PART of SOME months sales are paid for – leaving ONLY PART of that months sales outstanding (ie in this instance – R 9000 of September sales are paid – and R9000 are left unpaid)

22. Too much in the next month?
DAYS
November Debtors
November Sales
October Sales
ONLY R of SEPTEMBER SALES ARE UNPAID R R R
30 days
31 days

23. Transfer this portion to days
How many days did it take to sell R9000 in September – if September total sales were R ?
9000 divided by multiplied by 30
(30 days in September)
= 15 days (half the months sales!)

24. Calculation November Debtors Less November Sales Less October Sales
Less PART of September Sales
9000 X 30 = 15
18 000 R
(R ) R R
(R )
30 DAYS
31 DAYS
15 DAYS
TOTAL DAYS = 76 DAYS

25. Try another one December Debtors – R 198 000 August Sales – R 91 000
September Sales – R
October Sales – R
November Sales – R
December Sales – R

26. December / November and
ANSWER
69 DAYS
Unpaid sales are:
December / November and
PART of October

27. Try another one December Debtors – R 245 671 August Sales – R 91123
September Sales – R
October Sales – R
November Sales – R
December Sales – R

28. December / November / October PART OF SEPTEMBER (11 days)
Unpaid are:
December / November / October
AND
PART OF SEPTEMBER (11 days)

29. NOTE The SALES figure used to calculate DSO MUST INCLUDE VAT
If you are given figures that DO NOT include VAT – you would have to add 14% before doing your calculation
The DEBTORS figure always has VAT already included

30. If terms are 30 days Would this have been a good or a bad result?
What are some of the REASONS that so many days sales have not been collected?

31. REASONS Could be: Lazy staff not doing enough collection calls
Not enough staff available due to absenteeism
Too many debtors – not enough staff members
Staff not following required procedures and rules
Rules and procedures not in place
Rule and procedures are not viable for the creditors market

32. COMPULSORY TO DO IT! SHOW ALL OF YOUR CALCULATIONS
HOMEWORK
DSO homework will be ed to you tomorrow morning – MAKE SURE THAT YOU RECEIVE IT! Bring it back to class with you AT NEXT LECTURE
COMPULSORY TO DO IT!
SHOW ALL OF YOUR
CALCULATIONS