What are the best practices for reducing Days Sales Outstanding (DSO)?
How To Reduce DSO?
Answers
Dear
Companies reduce DSO by:
*Ensure that customer contracts are DSO friendly
*Understand the billing and collection process
*Seek out and eliminate DSO bad elements in the contract billing and collection process
*Move to electronic billing
*Are Past Dues the result of customer unwillingness to pay OR the result of operational issues: invoice gets to customer late, consistent invoice errors
The list goes on and on.
David L. O'Brien, CTP
2
Along the lines of what David said, identifying the specific areas that adversely affect DSO is key.
Take a look at this free
"Invoice-to-Cash Best Practices Study: A Business Perspective"
https://www.proformative.com/whitepapers/invoice-cash-best-practices-study-business-perspective
Best... Sarah
Hi David,
I would appreciate receiving your presentation on how companies can reduce DSO. Will you please send it to me?
Thanks,
Laura
In my experience, DSO increases are driven by a few customers. It is best to have your collection staff work closely with them to understand what is driving the slippage. A close personal relationship can help cuts a few days off the delinquency.
There will always be those customers who have their own terms. Large retailers will often force their suppliers to comply with their terms. There is not much that can be done there.
Finally, have your sales team work with their customers to find out how to get things moving.
You should contact David to get further details from him about his "DSO Bad elements in the...process". Eliminate the reasons for the customer to pay late. This involves cleaning up your internal process to ensure that the customer gets all of the paperwork required on a timely basis and that the paperwork is easy to understand and clearly identifies the due date.
Then, ensure that your collections department is diligent in pre-calling customers to ensure that the invoice was received and is set up in their payable system to be paid by the due date. If there are issues, those can be and should be resolved prior to the due date.
1. Invoice timely. Hopefully you invoice as soon as product is shipped or services are rendered.
2. Ensure operationally that invoices are accurate and they display everything a customer needs to pay.
3. Follow up on customers to make sure they have invoice before they are due
4. Follow up with customer as soon as past due and get commitment on payment
5. Continual reporting and follow up on these customers.
6. Review aging repeatedly and assign follow up actions
7. Document all correspondence/communications with customer
One thing that has not been listed is the close coordination with the Sales staff. Especially when commissions are based on collection, sales staff has a vested interest to keep DSO short.
Oooops...Karl said it already!
There is a complimentary Proformative
Also look at your unbilled AR which should be a component of the DSO calculation. You may be dragging down your DSO by overly aggressive revenue recognition with questionable items in unbilled AR status.
In my experience, there is a lot to do with the relationships we maintain with our customers...contracts may be in place, but there is no guarantee that they will be honored by the customers.... we therefore need to keep a close relationship with them, so that in case of delays, we can easily find out why, and rectify the situation
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Accounting