Why to collect account receivable on time

Day sales outstanding are most important concept for accountreceivable. According to DSO  if you collect your account receivable within first forty days then there will be no problem for your business. If DSO days are more than standard payment collection time then it indicates your collection is robust. Management thinks that by measuring comparison watching sudden spike is a good way to collect account receivable but account receivable collected on daily basis is good for your business.

For calculating DSO divide your annual sale by 365 this amount indicates credit sales in a single day so if divide it by your average account receivable you get DSO. The average account receivable and annual sales figure should be in correlation otherwise chance of misleading DSO will increased. If DSO is low and account receivable too is low then you need to think how to get it in a faster way since the fund you can utilize for expanding your business.

There are many ways to remove this problem .one way is to generate full year account receivable and cross check it. You can adopt a rolling quarterly strategy so that sales collection for past month will be easier.