Certified Supply Chain Professional (CSCP) Practice Exam

What does days sales outstanding measure?

1. The time to receive goods after ordering

2. The average number of days to collect payment

3. The total time taken to complete a sale

4. The duration of accounts payable processing

The correct answer is: The average number of days to collect payment

Days Sales Outstanding (DSO) is a critical metric used by businesses to measure how efficiently they are managing their accounts receivable. Specifically, it indicates the average number of days that a company takes to collect payment after a sale has been made. A lower DSO signifies that the company is collecting payments from its customers more quickly, which is often a positive sign of cash flow management and customer creditworthiness. By focusing on the average days to collect payment, businesses can assess their credit policies, cash flow efficiency, and operational effectiveness. Understanding DSO allows companies to predict cash flow and ensure they have adequate liquidity to support their operations. In contrast, the other options do not accurately represent DSO. They discuss aspects related to inventory management and accounts payable rather than the collection of receivables. Thus, they are not relevant to the specific function that DSO serves in financial analysis.