Days sales outstanding (DSO) is used to calculate how long it takes a company to convert its receivables into cash. When a company's revenue is steady and not subject to seasonal sales swings, the standard formula shown below is frequently used:
(Ending Total Receivables / Total Credit Sales) x Number of Days in Period
The count back method for calculating DSO takes into account monthly sales fluctuations, past due receivables and the actual number of days in a month. It is more representative of the flow of receivables and reflects that a majority of an AR balance comes from current sales—not the previous month's sales.
For more information and details see Do You Know Your DSO? and Understanding Your DSO.