Cash flow is the name of the game for most small businesses.

When you are running a business, it doesn't take long to figure out that if you are not managing your cash, you can get into trouble. You may be growing your sales, but still not have enough money to pay the bills -- all because you are not collecting receivables promptly. And in some cases, slow collections may signify bigger issues in your company. For instance, it may signal an inefficient accounts receivable department or poor customer service.

Many companies track a measurement called Days Sales Outstanding (DSO). Days Sales Outstanding measures how long it takes to collect receivables. The DSO measurement can help keep cash flow on track and serve as an early indicator of deeper problems that need fixing.

Our title sponsor of this blog, D & B Canada, has created an online calculator to help you calculate Days Sales Outstanding. D & B has actually gone one step further, calculating two different versions of Days Sales Outstanding.

"Regular DSO" measures average collection period. "Best possible DSO" separates out the delinquencies and measures how long it normally should take to collect. This page in the D & B Resource Centre explains it:

The Days Sales Outstanding financial indicator shows both the age, in terms of days, of a company's accounts receivable and the average time it takes to turn the receivables into cash. It is compared to industry and company averages, as well as company selling terms (e.g., Net 30) for determination of acceptability by the company. There are several methods of calculating DSO.

Regular DSO measures the time it takes to collect your receivables. It provides good understanding of the company's internal collection efficiencies, and requires three pieces of information for calculation:

- Total Receivables
- Total credit sales for the period analyzed
- The Number of days in the period analyzed

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Best Possible DSO yields insight into delinquencies since it uses only the current portion of receivables. As a measurement, the closer the regular DSO is to the Best Possible DSO, the closer the receivables are to the optimal level.

Best Possible DSO requires three pieces of information for calculation:

- Current Receivables
- Total credit sales for the period analyzed
- The Number of days in the period analyzed

Go here to access both DSO calculators online.

This post is sponsored by D & B Canada. Visit www.dnb.ca for more information.