MARCH/APRIL 2012 eNEWSLETTER

MARCH/APRIL 2012 Article

Get Paid Sooner With Better Daily Sales Outstanding (DSO) Management

We've all heard the saying "Cash is King." Businesses rely on cash to pay employees, vendors, suppliers, and taxes. To improve cash flow, companies must collect accounts receivable as quickly as possible. Daily Sales Outstanding (DSO) helps a company measure the average age of accounts receivable and its ability to collect money due. But how can your company improve DSO management?

  1. Understand the importance of DSO.

    DSO is an effective tool to help your company manage cash collection. For example, if DSO is high, your company may have limited access to funds that could be used for growth opportunities and working capital or it could affect your ability to secure bank loans. It can also be a red flag to your collections department so they can ensure that late paying customers do not become bad debts.

  2. Know your collection metrics.

    Determine the average number of days it takes for your company to collect outstanding bills. Once you know your baseline, watch for changes. For example, if the length of time to collect begins to increase, your company should take action to stop the trend and also make necessary adjustments to cash flow predictions. It is also useful to compare your collection metrics to the industry average. If your competitors are getting paid faster than you, find out why and make improvements.

  3. Examine your collection process and streamline processes.

    Once you know where your company stands on DSO, examine your collections process to find out what your company is doing well and what changes could be made to decrease your DSO. An article in Billing World suggests, "Getting revenue in the door is entirely dependent on getting the bill out the door." Does your collection department have trouble getting bills out quickly? Do they frequently need to send reminder notices to get bills paid? If so, look for ways to streamline invoicing processes and make your collections department more efficient. A simple change to your bill may make your collection efforts more effective.

As stated in the blog Profitably, "DSO, combined with other financial ratios, is an insightful evaluation tool that leads to eye-opening monitoring of the health–and wealth–of your business." If your company would like to improve its collections process and get paid sooner, Sage CRM is launching a new collection manager tool that enables companies to better manage DSO. Make DSO part of your collections management in order to streamline processes and improve cash flow.

 

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