BCCA Recommends DSO Formula
The Broadcast Cable Credit Association has approved a days sales outstanding (DSO) formula in the hopes that it will be adopted industry-wide. This would give all business managers and credit managers a better yardstick with which to compare collections. This formula has already been adopted by Westinghouse stations and is being implemented by Bonneville stations.
To date, days sales outstanding formulas have been as varied as snowflakes, each one different in calculation and outcome. If the broadcasting industry accepts the BCCA recommended DSO formula we will, for the first time, not only be reading the same book but also from the same page when we compare collections with other stations.
The BCCA reviewed the research of Mavis Sin, business manager of KOIT-AM/FM. She did a comparative analysis of the three methods of DSO calculation most widely used in the broadcast industry. The biggest problem with a DSO formula is that its calculation is based on two factors that have no correlation to how customers pay:
recent trends in sales, and
the time period used to calculate the daily average.
The DSO would look worse if sales were on the upswing or if you had a longer averaging period even if the amount of time customers were taking to pay was fairly consistent. Mavis Sin found that using a weighted days sales outstanding (WDSO) eliminated the problem of the sales fluctuations. She also recommends using a standard 30 day month to prevent swings in the DSO due to having different days in a month. The WDSO computation was developed in 1979 by Michael D. Carpenter and Jack E. Miller.
The method of calculation for the BCCA recommended DSO (WDSO) is:
Accounts receivable for current, 30, 60, 90 and 120 days divided by the standard billing for the related months, times the number of days in that month. The total of all these sums is the DSO. For example, August DSO is calculated as follows:
August DSO Calculation Example
|Aging Period||8/95 A/R||Billing for Month||Month||% O/S||Days in Month||DSO|
Please keep in mind that DSO should not be considered the only yardstick by which to measure receivables. If your station is not in a position to turn away slow paying customers, your DSO will suffer. However, if the industry adopts this DSO formula, we will at least have a basis for comparing our collection efforts with similar stations. We will no longer be comparing apples to oranges.
If your station or your group decides to adopt this DSO formula, we would very much like to hear about it. Please call the BCCA at 847-827-9330 and let us know.