Days' Sales Uncollected
🎯 Learning Objectives
- Understand what Days' Sales Uncollected measures and why it matters
- Calculate DSU using the formula: (Accounts Receivable / Net Sales) × 365
- Interpret DSU results to assess collection efficiency
- Compare DSU across time periods and competitors
- Understand the relationship between DSU and cash flow management
- Apply DSU analysis in credit policy decisions
📚 Background & Principles
Days' Sales Uncollected (DSU) is an efficiency ratio that measures how long it takes a company to collect payment from customers who bought on credit. It indicates how quickly the company converts accounts receivable into cash and reflects the effectiveness of its credit and collection policies.
🔑 Key Concepts
An efficiency ratio measuring the average number of days to collect credit sales.
A related ratio showing how many times per year AR is collected: Net Sales / Average AR.
The company's standards for granting credit to customers (payment terms, credit checks).
Another name for Days' Sales Uncollected—the time between sale and cash receipt.
Sorting AR by how long each amount has been outstanding.
The risk that customers won't pay, which increases with longer collection periods.
🔍 Deep Dive
Explore DSU at different levels of depth:
🟢 Foundational Level
Understanding the collection speed.
The "Collection Speed"
How fast do they pay?
When you sell on credit, you are lending money.
- The Question: How many days does it take for customers to give us our cash?
- The Goal: We want this number to be LOW (Fast cash).
- The Risk: If it's too high, customers might be struggling to pay.
The Formula
It compares what customers OWE (AR) to what we SOLD (Net Sales).
🟡 Standard Level
Calculating and interpreting DSU.
Calculation Example
Scenario:
| Item | Amount |
|---|---|
| Accounts Receivable (Year-End) | $5,000 |
| Net Sales (Annual) | $100,000 |
DSU = ($5,000 / $100,000) × 365
DSU = 0.05 × 365
DSU = 18.3 days
It takes about 18 days on average to collect from customers. This is quite efficient!
Strategic Meaning
Efficient Collection
A lower ratio suggests the company is quick at collecting cash, improving liquidity.
Risk of Bad Debts
A rising ratio may indicate poor credit policies or customers struggling to pay.
🔴 Advanced Level
Advanced DSU analysis and policy implications.
Factors Affecting DSU
| Factor | Effect on DSU |
|---|---|
| Lenient credit terms | Higher DSU (longer to pay) |
| Stricter credit terms | Lower DSU (faster payment) |
| Efficient collection | Lower DSU |
| Inefficient collection | Higher DSU |
| Economic downturn | Higher DSU (slower payments) |
Industry Comparisons
DSU varies by industry:
- Retail: Often 20-30 days (credit cards process quickly)
- Manufacturing: Often 40-60 days (longer payment terms)
- Utilities: Often 30-45 days (monthly billing)
🎨 Interactive: DSU Calculator
Calculate and analyze Days' Sales Uncollected:
Days' Sales Uncollected
Days
🚫 Common Misconceptions & Professional Tips
✅ Reality: Higher DSU means slower collection, which ties up cash and increases bad debt risk. The goal is efficient collection, not maximizing AR.
✅ Reality: They are reciprocals. AR Turnover = Sales / AR. DSU = (AR / Sales) × 365 = 365 / AR Turnover. Both measure the same thing from different angles.
✅ Reality: DSU focuses on trade receivables from credit sales. Non-trade receivables (employee loans, etc.) are typically excluded.
🧠 Memory Aids & Quick Reference
DSU = (AR / Sales) × 365
Interpretation:
• Lower DSU = Faster collection (Good)
• Higher DSU = Slower collection (Risk)
Related: AR Turnover = Sales / AR = 365 / DSU
Accounts Receivable ÷ Net Sales × 365 = DSU
Average days to collect customer payments
Speed of collection vs. customer relations
AR Turnover = Sales / AR = 365 / DSU
📖 Glossary
An efficiency ratio measuring the average number of days it takes to collect payment from credit customers.
An efficiency ratio measuring how many times per year accounts receivable are collected: Net Credit Sales / Average AR.
Total sales minus sales returns, allowances, and discounts.
Sorting accounts receivable by how long each amount has been outstanding, used to assess collection patterns.
The standards and procedures a company uses to grant credit to customers, including payment terms and credit checks.
Another term for Days' Sales Uncollected, representing the average time to collect receivables.
An account receivable that is unlikely to be collected, written off as an expense.
Amounts owed by customers from credit sales of goods or services.
🎯 Knowledge Check: Days' Sales Uncollected
Test your understanding of DSU:
Question 1: What does Days' Sales Uncollected measure?
Question 2: What is the DSU formula?
Question 3: A company with AR of $10,000 and Sales of $200,000 has a DSU of:
Question 4: A higher DSU generally indicates:
Question 5: If AR Turnover is 10 times per year, what is DSU?