Receivables turnover period or also known as Days sales outstanding is a variation of receivable turnover ratio. Instead of a number (from receivable turnover ratio) receivable turnover period ratio churns out the days, weeks or months for which sales remained outstanding. It adds more to quality of information in terms of understanding by knowing the number of days entity took on average to collect cash from its credit customers.
Receivable turnover period is calculated by dividing number of days in a year over receivable turnover ratio. Usually it is calculated in terms of days but it can be computed in terms of weeks or months. Its up to management to determine how long a period is in terms of days. It might be 365 or 360 days or only working days in a year excluding weekends and public holidays.
Receivable turnover period = Number of days in the period / Receivable turnover ratio
Sonysung Ltd enjoyed great revenue last year. Total credit sales amounted to 2 million and average receivables remained well within control and amounted to 250,000. According to Sonysung, year was 360 days long.
Determine the days sales remained outstanding
Receivable turnover ratio = Credit sales / Average receivables
= 2,000,000 / 250,000 = 8
Receivables turnover period or DSO = Number of days in the period / Receivable turnover ratio
= 360 / 8 = 45 days
On average, entity took 45 days to receive or collect cash from its debtors.