What does a days sales outstanding (DSO) report help determine?

The days sales outstanding (DSO) report is a key financial metric that helps businesses evaluate how quickly they collect cash from their credit sales. It specifically measures the average number of days it takes for a company to receive payment after a sale has been made. This metric is crucial for assessing a company’s cash flow and financial health.

In particular, DSO provides insights into the effectiveness of a company's credit and collections policies, which are closely tied to the payment terms established for customers. By analyzing the DSO, a company can evaluate whether its payment terms are appropriate or if adjustments are needed to improve cash flow by encouraging faster payments. Monitoring DSO trends over time can also help identify any ongoing issues with collections or changes in customer behavior, which may prompt a reevaluation of payment structures.

Thus, the DSO report is fundamentally linked to assessing and optimizing payment terms for customers, highlighting its significance in financial management and strategic planning.