Final answer:
A high average DSO doesn't necessarily indicate that all customers are late on payments, and evaluating the firm's DSO in the context of its credit terms is indeed sensible. Thus, the statement given is false.
Step-by-step explanation:
When evaluating the financial health and credit management of a firm, the Days Sales Outstanding (DSO) serves as a critical metric. The DSO measures the average number of days it takes a company to collect payment after a sale has been made, essentially reflecting the effectiveness of the company's credit and collection policies. If a company has a high average DSO, it may suggest that it is less efficient at collecting accounts receivable.
However, this doesn't inherently mean that none of its customers are paying on time. It could indicate a diversity of payment timelines among clients, which contributes to the overall higher DSO. Additionally, DSO can be influenced by seasonal sales patterns, the economic environment, or the industry itself where longer credit terms are common.
To have a comprehensive understanding of a firm's DSO, it's important to consider the company's credit terms. Credit terms define the expectations for the timing of payment from customers. When comparing DSO to these terms, it helps to establish whether the day's sales outstanding fall within, below or exceed the expected timeframe for payment. A company's industry standards and competitors' terms and DSO should also be considered for a well-rounded analysis.
In conclusion, asserting that a high average DSO invariably implies delayed payments is an oversimplification; further, ignoring the relationship between DSO and the firm's credit terms misses a significant part of the equation in credit management analysis. Therefore, the correct answer to the question is B. False.