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Changes in DSO
Days sales outstanding (DSO) increases or tends to more precisely tends to increase as a company becomes less risk averse. Higher DSO can also be an indication of poor follow up on delinquencies, or higher DSO might be the result of inadequate analysis of requests for open account credit terms. An increase in DSO can result in cash flow problems for the creditor company. If accounts receivable grows more quickly than revenue resulting in increasing DSO, it can be an indication that the company may be trying to boost sales by offering its customers longer payment terms. It may also indicate that the company is offering special incentives to customers and/or salespeople to encourage sales right before quarter end.
© 2011. Michael C. Dennis. All Rights Reserved. He is the author of "1001 Collection Tools and Tips."