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Presentazione dso (english)
1. «Don't be afraid to think differently from others;
be afraid to think the same way and find out that
they are all wrong»
2. D S O
Days Sales Outstanding
“Formula for Disaster ?
If you track receivables the way most companies do, you may be headed for
trouble without knowing it”
Charley Kyd
in the
soup of
DSO
3. That is
Exposure expressed in days of sale
"This is the best known method used to measure credit exposure days"
(and therefore the effectiveness of the credit collection
in credit management activity)
4. The objective in the calculation of the DSO is
therefore to measure the days of credit exposure
and consequently the effectiveness of the credit
collection
Always remember that the DSO calculation
is a measurement (KPI - Key Performance Indicator) ...
beware of those who say it's just a trend ... at the right
time they will measure you on this number!
6. the standard DSO formula:
yearly invoicing : days in a year (365) = outstanding : X
from which:
outstanding x 365
X (DSO) = --------------------------
yearly invoicing
7. MOBILE YEAR (but also semester, quarter)
Let's take the standard formula
The 13th month turnover is removed by proceeding backwards, the
turnover of the current month is added and therefore we will have:
outstanding on 31st december
invoicing jan-dec : days in a year (365) = outstanding on 31st dec : X
outstanding on 31st dec x 365
X = ---------------------------------------
mobile invocing jan-dec
outstanding on 31st january
invoicing feb-jan : days in a year (365) = outstanding on 31st jan : X´
outstanding at 31st jan x 365
X´ = ---------------------------------------
mobile invoicing feb-jan
8. BACKTRACK (that is countback)
Exposure to a certain date is noted
The previous monthly turnovers are subtracted from the amount of exposure
(outstanding) recorded, proceeding backwards to zero; the value of each monthly
turnover (invoicing) used to cover the exposure represents one month (30, 31 or 28
days).
The remaining credit will be covered by the daily turnover of the last month.
example:
outstanding on 31st january = 2.500 k-euro
minus - monthly invoicing of january 1.000 k-euro = days 31
----------
residual exposure 1.500 k-euro
minus - invoicing of december 1.000 k-euro = days 31
----------
residual exposure 500 k-euro
minus - invoicing of november (1000 k-euro)
calculate the November daily turnover (30 days) to cover the residual
1,000 k-euro / 30 = 33 k-euro; residual 500 k-euro / 33 k-euro = days 15
(but you can also write 500 k-euro * 30 / 1,000 k-euro)
--------
DSO = gg. 77
9. We said:
“This is the best known method used to measure
credit exposure days”
…………….
But is this the correct method?
Let's analyze the components of the acronym DSO
and the variables that affect the calculation:?
Let's analyze the components of the acronym DSO
and the variables that affect the calculation:
acronym:
DSO - DAYS SALES OUTSTANDING
10. DSO days sales outstanding: the “variable” days
Days … but what days? In the calendar year in a month the
days can be 31, 30, 28 …...(someone would like to consider only
working days in a month; in December we should NOT therefore
consider besides the Saturdays and Sundays also the feasts of the
Immaculate Conception, Christmas, St. Stephen and for Milan
also his patron S. Ambrogio ) ……
If we take a period of three months we will still have differences
in the calculation of days such as:
november december and january 30+31+31 = 92 days but…
december january and february 31+31+28 = 90 days
january february and march 31+28+31 = 90 days
february march and april 28+31+30 = 89 days
11. This means that if by hypothesis all our customers pay 60 days at the end of the
month agreed upon (considering the last day of the expiration month as not
expired) we would have:
survey of 31st January , DSO = 92 days
formed by turnover not yet due November (30) December (31) January (31)
survey of 28th February DSO survey = 90 days
formed by turnover not yet due December (31) January (31) February (28)
survey of 31st March DSO = 90 days
formed by turnover not yet due January (31) February (28) March (31)
survey of 30th April DSO survey = 89 days
formed by turnover not yet due February (28) March (31) April (30)
survey of May 31st DSO = 92 days
formed by turnover not yet due March (31) April (30) May (31)
With this result:
12. period trend of the DSO
92
90 90
89
92
87
88
89
90
91
92
DSO
DSO 92 90 90 89 92
nov/gen dic/feb gen/mar feb/apr mar/mag
An improvement (false) from January to April and a sudden (false) deterioration
from April to May due only to the variable of the period in question.
13. But for the variable “days” it's not all ...
We continue the calculation of the backtrack method and assume
that the last month on which to calculate the daily turnover is
February. The monthly turnover divided by 28 days will therefore
give a higher daily turnover than the 31 day months
If we divide the remaining exposure by a higher daily turnover,
the DSO days result will be lower
(so we will have a false improvement)
14. DSO days sales outstanding: the “variabile” sales
• the incidence of VAT
Let's go back to the standard DSO formula:
outstanding x 365
X (DSO) = --------------------------
yearly invoicing
We extrapolate the data from the budget but ... ..
In the financial statements the exposure v / customers includes VAT
while the turnover is net of VAT
The two data are NOT homogeneous if the VAT is not added to the
turnover or removed from the exhibition.
the DSO calculation is therefore also influenced by this variable.
15. • the incidence of the practices to the lawyer, of the practices
frozen for commercial dispute, of the Intercompany
customers, of the effects turned to the discount etc.
Should they be included in the DSO calculation or not?
What do they enter with the credit collection business?
The DSO is also influenced by this variable
16. •The incidence of monthly sales fluctuation
Sales (turnover) or the main objective of the commercial
function ... but what does it have to do with credit
management?
How the turnover trend affects the DSO maintaining constant
payment conditions (for example at 60 days f.m.) and the trend
of collections ...
for a better understanding of the calculations, see the
subsequent slides n° 20, 21, 22 (but first we complete with the
outstanding "variable")
17. Outstanding that is overdue + not yet due
But what does credit collection activity have to do with "not expired"?
How can the credit manager intervene on "not expired"?
Little or nothing.
Example:
The last day of the expiry month is considered not yet due (unexpired)
• monthly invoicing 100.000 euro
• standard Terms of payment 60 days e.o.m. (jan-feb-mar)
• actual payment after 30 days (in april)
DSO = 90 days (jan-feb-mar-apr)
• payment terms were changed in 120 days e.o.m. for
• trade policy (jan-feb-mar-apr-may)
• actual paymnent after 30 giorni (in june)
DSO = 150 days (jan-feb-mar-apr-may-june)
DSO days sales outstanding: the “variable” outstanding
18. In the detection of the DSO is considered
a fixed date of detection that generally
is identified at the end of each month.
If I register payments on day 1, day 15, or day 30 of the same month (for
example April) for the DSO recorded on 30th April, this difference in payments
is irrelevant:
We will have a photograph (flash) of the DSO as of 30th April that will take over
outstanding in which there will no longer be invoices that were highlighted in
the outstanding on 31st March ... regardless of the date of payments during the
month of April
And always for the variable outstanding
19. and see how the variations in turnover
(invoicing) affect the days of DSO using the
backtrack method and the mobile year method,
both with the business year and with the
calendar year
20. data:
survey as of 31st December (as of 1st Jan to avoid "expired or not expired at the end of the month")
payment terms 60 fm payments 50% at sight 50% after 30 days
COUNTBACK or BACKTRACK METHOD
invoicing(1) invoicing(2) invoicing(3) (1) (2) (3)
constant increases decreases outstanding outstanding outstanding
d 100.000 100.000 100.000 300.000 340.000 265.000
n 100.000 100.000 100.000 -100.000 (31) (30) -100.000 (31) (30) -100.000 (31) (30)
o 100.000 100.000 100.000 ---------- ----------- ------------
s 100.000 (1) 180.000 (2) 30.000 (3) 200.000 240.000 165.000
a 100.000 100.000 100.000 -100.000 (30) (30) -100.000 (30) (30) -100.000 (30) (30)
l 100.000 100.000 100.000 ----------- ----------- -----------
g 100.000 100.000 100.000 100.000 140.000 65.000 (20) (20)
m 100.000 100.000 100.000 -100.000 (31) (30) -100.000 (31) (30) -100.000
a 100.000 100.000 100.000 ------------ ------------ =======
m 100.000 100.000 100.000 0 40.000 (7) (7)
f 100.000 100.000 100.000 ====== -180.000
g 100.000 100.000 100.000 ======
DSO (1) DSO (2) DSO (3)
inv. constant inv. increases inv. decreases
calendar commercial calendar commercial calendar commercial
year year year year year year
92 90 99 97 81 80
21. data:
survey as of 31st December (as of 1st Jan to avoid "expired or not expired at the end of the month")
payment terms 60 fm payments 50% at sight 50% after 30 days
MOBILE YEAR METHOD
invoicing(1) invoicing(2) invoicing(3)
costante increases decreases
d) 100.000 100.000 100.000
n) 100.000 100.000 100.000
o) 100.000 100.000 100.000
s) 100.000 (1) 180.000 (2) 30.000 (3)
a) 100.000 100.000 100.000
l) 100.000 100.000 100.000
g) 100.000 100.000 100.000
m) 100.000 100.000 100.000
a) 100.000 100.000 100.000
m) 100.000 100.000 100.000
f) 100.000 100.000 100.000
g) 100.000 100.000 100.000
---------- ----------- -----------
1.200.000 1.270.000 1.130.000
======= ======= =======
mobile inv. : 365 (360) = outstanding : X
outstanding * 365 (360)
X = ----------------------
mobile inv.
invoicing constant (1)
300.000 *365 (360)
DSO = ----------------------------- days 91 90
1.200.000
invoicing increases (2)
340.000 *365 (360)
DSO = ----------------------------- days 97 96
1.270.000
invoicing decreases (3)
265.000 *365 (360)
DSO = ----------------------------- days 86 84
1.130.000
22.
23. And now I ask you: what is due to the
improvement or deterioration of the DSO?
And to what extent (days) depends on the credit
collection activity of credit collection?
I only remind you that: "This is the most well-
known method used to measure the days of
credit exposure"
24. D S O
Days Sales Outstanding
not yet due overdue
granted suffered
What does it
matter if it is
Granted ?
Legal, promissorynotes, disputes,
intercompany, gentlemen’s agreement
?
PERIOD ?
25. NOT to consider DSO a valid measure for credit
management is a Copernican Revolution!
TOLEMAIC SYSTEM
(GEOCENTRIC)
CLAUDIO PTOLOMY 367 a.C. circa – 283 a.C
COPERNICAN SYSTEM
(HELIOCENTRIC)
NICCOLO’ COPERNICUS 1473 - 1543
26. COPERNICAN REVOLUTION: the GPS (WADL)
"the variable" overdue (suffered part) the only true
variable for the measurement of the credit collection
activity by the credit management;
how to calculate it? We consider only the overdue and unpaid invoices or
the part of "overdue" suffered and we measure for each the time elapsing
from the expiry date to the date of our survey; such as? We multiply the
amount of each invoice for the days from the due date to the survey date
and we will get the so-called numbers, add up the numbers and divide the
result by the sum of the invoice amounts ... and we will have the weighted
average of the days of expiry suffered, GPS or English WADL Weighted
Average Days Late
(and if we want to know the cost of the delay suffered at the time of the
survey (the charges) it is sufficient to multiply the sum of the numbers by
the annual rate, we divide by 36,500 (calendar year) ... and we will have the
financial charges suffered at the time of the survey due to the delay
27. here is the formula:
where is it:
∑ = summation symbol
i = index of the summation
X = amount of each invoice expired and NOT paid
p = weighting, or the difference in days from the expiration date to the reporting date of each
overdue and NOT paid invoice
(x1*p1)+(x2*p2)+(x3*p3)…..(xn*pn) / x1+x2+x3…..xn
n n
GPS or WADL = ∑ (xi*pi) / ∑ xi
(i=1) (i=1)
28. G P S
Giorni Ponderati di Scaduto (subìti)
in ENGLISH WADL Weighted Average Days Late
The weighted average of the days of expiry is therefore the true measurement of the days
of extension suffered, without interference due to: calculation of days, variations in
turnover, terms of payment to expire and other things that would lead to erroneous
assessments ... in summary the evaluation of the credit collection activities by credit
management!
29. FATTURAZIONE
condizioni e termini di pagamento concordati scaduto e pagato
numero data importo termini pag data data pagamento
fattura fattura fattura cond. pag giorni effettivi numeri media pond oneri scadenzainserire 0 in formato data importo
giorni e risulterà 00/01/00
se non pagato
1 04/10/06 € 200,00 rim dir d.f. 60 60 12.000,00 3,00 € 3,29 03/12/06 21/02/07 € 200,00
2 04/10/06 € 200,00 rim dir d.f. 60 60 12.000,00 3,00 € 3,29 03/12/06 21/02/07 € 200,00
3 04/10/06 € 200,00 rim dir d.f. 60 60 12.000,00 3,00 € 3,29 03/12/06 21/02/07 € 200,00
4 02/11/06 € 200,00 rim dir d.f. 60 60 12.000,00 3,00 € 3,29 01/01/07 22/03/07 € 200,00
5 02/11/06 € 100,00 rim dir d.f. 60 60 6.000,00 1,50 € 1,64 01/01/07 22/03/07 € 100,00
6 25/11/06 € 50,00 rim dir d.f. 60 60 3.000,00 0,75 € 0,82 24/01/07 14/04/07 € 50,00
7 25/11/06 € 50,00 rim dir d.f. 60 60 3.000,00 0,75 € 0,82 24/01/07 14/04/07 € 50,00
8 25/11/06 € 200,00 rim dir d.f. 60 60 12.000,00 3,00 € 3,29 24/01/07 14/04/07 € 200,00
9 31/12/06 € 100,00 rim dir d.f. 60 60 6.000,00 1,50 € 1,64 01/03/07 20/05/07 € 100,00
10 01/02/07 € 600,00 rim dir d.f. 60 60 36.000,00 9,00 € 9,86 02/04/07 21/06/07 € 600,00
11 02/03/07 € 300,00 rim dir d.f. 60 60 18.000,00 4,50 € 4,93 01/05/07 20/07/07 € 300,00
12 02/04/07 € 300,00 rim dir d.f. 60 60 18.000,00 4,50 € 4,93 01/06/07 20/08/07 € 300,00
13 02/05/07 € 100,00 rim dir d.f. 60 60 6.000,00 1,50 € 1,64 01/07/07 00/01/00 € 0,00
14 02/06/07 € 600,00 rim dir d.f. 60 60 36.000,00 9,00 € 9,86 01/08/07 00/01/00 € 0,00
15 04/07/07 € 300,00 rim dir d.f. 60 60 18.000,00 4,50 € 4,93 02/09/07 00/01/00 € 0,00
16 02/08/07 € 500,00 rim dir d.f. 60 60 30.000,00 7,50 € 8,22 01/10/07 00/01/00 € 0,00
€ 4.000,00 240.000,00 60,00 € 65,75 € 2.500,00
controprova 60,00 € 65,75
RIEPILOGO COSTI PREVISTI PRE-FATTURAZIONE E FATTURAZIONE RIEPILOGO COSTI TOTALI EFFETTIVI
pre-fatturazione da sped. a fatt tempo " tecnico" da sped a fatt.
giorni da spedizione a fatturazione 0,00 giorni 0,00 = 0,00
oneri previsti nascosti € 0,00 oneri € 0,00 = € 0,00
standard extra
pagato da fatt a scad da scad a pag.to pagato partite chiuse
termini pagamento concordati 60,00 giorni 60,00 80,00 = 140,00
oneri concordati previsti € 65,75 oneri € 41,10 € 54,79 = € 95,89
standard extra
scaduto da fatt a scad da scad a rilevazione scaduto partite aperte
€ 65,75 giorni 60,00 35,43 = 95,43
controprova oneri € 11,51 € 6,79 = € 18,30
standard
a scadere da fatt a scad a scadere partite aperte
giorni 60,00 = 60,00
oneri € 13,15 = € 13,15
totale costo totale costo totale costo
della della globale
conformità NON conformità
60,00 35,43
TMPC Termini Medi di Pagamento Concordati GPS Giorni Ponderati di Scaduto
o ACT Average Credit Terms o WADL Weighted Average Days Late
30. Now allow me a provocation
If I wanted to measure the width of this desk I could say that it
measures like my arm, or I could measure it in “measuring
spans” like this
31. and to state that the width of the desk is 5 spans. I could use two
methods: the first: using one hand and opening and closing the
second hand: using the two hands one after the other I would have a
minimum difference of a finger more or less ... just like the DSO that
uses two methods : mobile year and backtrack
32. But if I have the same size taken by my carpenter who is big
and big, with two hands similar to a planer, the measure is 4
spans
if I take it to my wife it is 6 spans
if I take it to my granddaughter of two years is 10 spans ...
why? ... it depends on the variables in this case the variables
are the hands as in the DSO the variables are the days, the
turnover (invoicing), the survey period, the payment terms
and the payments themselves ...
If I want an exact measure, measured by anyone in the same
way , precise and with only one method, I HAVE TO USE
THE CENTIMETER as I have used GPS (or WADL)
33. And I end with a statement by Charley Kyd, university
professor U.S.A. as well as author of various economics
books and president of ExcelUsers
“….. But as I learned many years ago, the standard DSO
metric is worse than useless…..”