Days Sales Outstanding / Average Collection Period

Also called average collection period, the days sales outstanding ratio is calculated as

trade accounts receivable balance x 365
annual credit sales

The trade accounts receivable amount used in the ratio should be the amount before any deduction for uncollectible accounts.

The following is an example of the calculation:

Total annual credit sales	$120,000
Year end trade accounts receivable	$30,000
Day's sales outstanding = 30,000 x 365 / 120,000 =	91.25

For a firm with terms of net 30 days, days outstanding of 91.25 would indicate a severe problem in the collection of accounts receivable.