Just about every customer I’ve talked to over the past few months has said their cash flow has been interrupted in this challenging business environment. A high DSO can have a tremendous impact on cash flow and revenue and can prohibit you from investing in your company’s growth. Reducing DSO, even slightly, can go a long way toward improving financial health.
There are several strategies to reduce DSO and improve an organisation’s cash flow. Here are seven that could help:
- Make it easier for your customer to do business with you
Offering multiple payment methods — such as credit cards and automatic payments, or an online option for customers to view invoices and statements — provides greater flexibility for the customer and improved cash flow for you. Are you making it easy for your customers to pay and communicate with you?
- Tighten up your credit approval
Are you performing credit evaluations on all new customers? Is your credit policy appropriate and followed by your sales department? Does your customer service department flag new orders that do not have a completed credit application? Do you update credit information on a regular basis?
- Sharpen your invoicing process
Are your invoices accurate and sent on time? Are payment terms and due dates clearly written on invoices and any other communication sent out to the customer? Have billing addresses and accounts payable email addresses been verified before bills are sent out? Do you provide incentives for early payment? Are you sending out automated payment reminders.
- Utilise reporting and get to the bottom of root causes
Are you measuring performance against goals? Do you regularly review aging reports? Are you reporting on collections forecasting? Do you have an understanding as to why customers are paying late (e.g., invoice discrepancies, product issues, etc.)?
- Effective and efficient collections
Do you have a collections process in place? Do employees have the tools they need to prioritise, call and email collection efforts? Do they have enough time to follow up on all past-due accounts? Are they able to efficiently keep sales and customer service in the loop on disputed invoices? Do you consistently follow up on customer disputes and late payments?
- Incentivise your customers
Do you offer incentives, such as early payment discounts? For example, you could offer a discount for paying within 10 days when your payment terms are net 30 days. This discount can be offset by speeding up cash flow, savings on loan fees and discounts from creditors.
- Know when to walk away
No one wants to walk away from a customer, but do you know which customers are routinely inconsistent, unresponsive or continually paying invoices late, despite offering outstanding services? Has your company considered dropping bad customers from your business list? DSO increases are often driven by a few large customers. Has your collection team worked closely with those customers to understand what is driving delays?
DSO is the most commonly used metric utilised by credit and AR professionals to analyse the success of their collection efforts. The more quickly you collect, the better your cash flow situation will be … and even a small improvement to reduce DSO can go a long way!
For even more ways to improve your cashflow situation download our free eBook:
8 Accounts Receivable Management Strategies to make your process Best-In-Class
Or visit our website for more information about our Order-to-Cash solutions.
Or feel free to contact us; our O2C experts would love to help you to transform your O2C processes.