Benjamin Madjar, founder and president of Cashlab, reminds us in his speech at the Conference on payment deadlines (and financing) the importance of monitoring working capital KPIs, and more specifically the areas for improvement in working capital management (32min30). He also provides a reminder of the definitions of DSO and DPO (37min20).
DSO, DPO and DIO are three of the most useful acronyms for financial management, but why? And above all, how to calculate them? At Cashlab, we can help you to see more clearly and to understand how important it is to monitor them.
DSO calculation
DSO (Days Sales Outstanding) is the average time (in days of turnover) taken to pay customers. It can be calculated as follows:
DSO (Days Sales Outstanding) is the average time (in days of turnover) taken to pay customers. It can be calculated as follows:
Le DSO est le délai moyen, en jours de chiffre d’affaires, de paiement des clients. La meilleure méthode reste celle par
apurement (ou Roll, ou Count Back), qui tient compte de la saisonnalité.
This method consists of "depleting" the outstanding receivables by the turnover (including VAT) of the previous months, and then adding up the number of days in the corresponding months (April = 30 days, August = 31 days). This method takes into account the seasonality of turnover and allows for a more realistic comparison.
⇒ The lower the DSO, the faster your customers pay you (due to your contractual payment terms + possible delay). Conversely, the higher the DSO, the longer it takes your customers to pay you. In this case, you should be able to separate your DSO into two parts: the payment terms contracted with the customer and the additional time taken by the customer to pay you.
DIO calculation
The DIO (Days Inventory Outstanding) or the average storage time (in days of costs) is calculated as follows:
Le DIO (Days Inventory Outstanding) ou le délai moyen (en jours de coûts d’achat) de stockage se calcule ainsi :
Le DIO convertit le volume de stock en nombre de jours d’achats. Là aussi, la méthode par apurement (ou Roll, ou Count
Back) reste la plus fiable.
⇒ This calculation gives the volume of stock converted into the number of days of purchases. A distinction can be made between stocks of raw materials, packaging, work-in-progress and finished products to refine the relevance of the ratios calculated.
Another calculation is to use future sales and measure the coverage of sales with stocks of finished products.
DPO calculation
The DPO (Days Payable Outstanding) is the average time (in purchasing days) taken to pay supplier invoices. It is calculated as follows:
The DPO (Days Payable Outstanding) is the average time (in purchasing days) taken to pay supplier invoices. It is calculated as follows:
Le DPO est le délai moyen, en jours d’achats, de paiement des factures fournisseurs. Il doit rester conforme aux termes
contractuels négociés avec vos fournisseurs. Méthode la plus fiable : l’apurement (ou Roll, ou Count Back).
⇒ The higher the DPO, the later your company pays its suppliers. The DPO should be as consistent as possible with the contractual terms with your suppliers.
All the subtlety lies in the fine-tuning of the elements relating to receipts (DSO) and those relating to disbursements (DPO), in order to minimise the need to finance the working capital requirement.
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DSO, DPO and DIO: why and how to assemble these indicators?
There is an interesting indicator (even if mathematically false because the same denominators are not used) that brings these 3 indicators together, it is the Cash conversion cycle, also called CCC. The CCC is calculated as follows:
Il existe un indicateur intéressant (même si mathématiquement faux car on n’utilise pas les mêmes dénominateurs) qui rassemble ces 3 indicateurs,
il s’agit du cycle de conversion de trésorerie, aussi appelé CCC = Cash Conversion Cycle. Le CCC se calcule ainsi :
Le Cash Conversion Cycle est le reflet de votre BFR opérationnel : le nombre de jours entre le décaissement fournisseurs
et l’encaissement clients.
This is a key indicator in the management of the WCR because a good action plan must take into account actions on:
- Clients: contractual review of payment deadlines, effective reminder process, etc.
- Suppliers: negotiate payment terms as best as possible, pay on time with a clear internal process (too many companies pay on the fly),
- Stocks: periodic monitoring of outstanding stocks at a minimum...
Manage your cash flow and save time
To calculate and monitor these ratios efficiently, Cashlab has integrated them natively into the platform and has added (1) automatic calculations of theoretical gains (a real return on investment from the first connection) and (2) self-assessments to help your teams adopt the right business gestures and integrate a real Cash culture.
Votre BFR mérite mieux qu’un Excel.
Suivez votre DSO, DPO et DIO directement depuis Cashlab.
