Goldpeak Advances in El Centro, California offers this worksheet so owners can measure their own collection time before asking about working capital or a credit line. A partner may measure receivables its own way, and every decision stays with that partner.
Days Sales Outstanding Calculation Example: Numbers a Child Care Center Can Pull From Its Books
A child care center bills tuition and, for some families, waits for subsidy payments. Its receivables are the tuition and subsidy amounts billed but not yet paid. Pull receivables from the month-end balance and credit sales, here tuition and subsidy billed, from the same period's records.
Illustration only, invented figures: a center has $21,400 of tuition and subsidy receivables at month-end, and billed $84,600 over the last 90 days. Dividing $21,400 by $84,600 and multiplying by 90 gives 22.8 days (our arithmetic). Payroll every 14 days falls inside that wait about twice.
Cash and card tuition paid on the day is not a credit sale; leave it out, or the result will look shorter than the real wait for billed amounts.
Accounts Receivable Turnover Ratio and the Grocery Store Figures Behind a Store Remodel
Accounts receivable turnover is the same measure turned around: credit sales for a year divided by average receivables. Dividing 365 by the turnover gives days sales outstanding. A grocery store with wholesale accounts, such as restaurants that buy on terms, can use it to see how those accounts affect cash before a store remodel.
Turnover is handy when the business keeps annual figures rather than monthly ones, as some small stores do at tax time. Use the receivables balance from the start and end of the year to get the average, and only the sales made on account; register sales paid by cash or card stay out.
Illustration only, invented figures: a grocer sells $186,000 a year on account; receivables were $14,200 at the start of the year and $16,800 at the end, for an average of $15,500. Turnover is 12.0 times a year, and days sales outstanding is about 30.4 days (our arithmetic).
Days Sales Outstanding Formula and Calculator: Inputs Restaurant Owners Already Have
Restaurant owners already have the inputs if they do catering or events on invoice: the invoices sent, the amounts still open, and the dates. Card sales at the table are paid within days by the processor and are not receivables in this sense.
Illustration only, invented figures: a restaurant has $9,600 of open catering invoices and billed $12,800 of catering over the last 30 days. Days sales outstanding = $9,600 / $12,800 x 30 = 22.5 days (our arithmetic).
- Take receivables from the month-end balance sheet.
- Add up credit sales for the same 30, 90 or 365 days.
- Divide receivables by credit sales.
- Multiply by the number of days.
- Repeat for the prior months to see the trend.
Reading the Days Sales Outstanding Formula and Calculator Result Before Food Orders
Read the result against the payment terms. If customers are on 30-day terms and days sales outstanding is near 30, they are paying on time. A number well above the terms means invoices are paid late, and the gap is money the business is carrying. Food orders, wages and rent do not wait for that gap to close.
Illustration only, invented figures: a supplier to restaurants has $31,500 of receivables and $63,000 of credit sales over 90 days, so days sales outstanding is 45 days against 30-day terms (our arithmetic). The extra days are the gap a working capital loan or a line of credit could carry.
The figure is a guide for the owner. A partner reviewing a request reads the receivables aging itself, by customer and by age.
An aging report sorts open invoices into buckets: current, 1 to 30 days past due, 31 to 60, 61 to 90 and over 90. Two businesses with the same days sales outstanding can look very different in an aging: one with every customer a little late, another with most customers on time and one large account months behind. The second carries more risk, because one customer decides how much cash comes in.
Days sales outstanding also moves for reasons inside the business. Invoices sent a week after the work is done add a week to the result before any customer is late. Sending invoices the day the work is finished, asking for deposits on large orders and offering card or electronic payment can all shorten the wait, and a lower, steadier figure over several months is the trend worth showing a partner.
By Goldpeak Advances · Updated
