Our accounts receivable balance includes tax and finance charges, although those amounts are not included in the sales figure used in our DSO calculation. This obviously has a negative impact on the DSO figure. What is the "industry standard" regarding including these additional charges when calculating DSO? Is it common practice? It would help to know when making comparisons if they are apples to apples.

There is no standard for adding these additional charges when computing DSO. It is a matter of personal preference whether or not the sales tax and finance charges are factored in. It is important, however, that DSO is calculated consistently from period to period. The problem with the scenario you describe is not including the sales tax and finance charges into the credit sales figure. This tends to distort the DSO, and, as a result, any comparison would be flawed

For the purpose of computing CRF's National Summary of Domestic Trade Receivables, we ask members to include sales tax and finance charges.

Lyle Wallace, VP Research
Credit Research Foundation

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