Strategies to reduce DSO and improve cash flow
DSO, otherwise known as Days Sales Outstanding, is a key metric of accounting teams and ensuring DSO is as low as possible is certainly an overarching goal of all financially focused teams - the lower the DSO, the faster payments are collected. More than this, however, a high DSO can have a surprisingly significant impact on your cash flow and revenue, and even prohibit you from investing in business growth. With this in mind, then, we’ll explore how to reduce DSO with an effective DSO reduction strategy.
DSO reduction strategy
Make it as easy as possible for clients to pay: making it as easy and stress free as possible for your clients to pay should be at the very top of your DSO reduction strategy as - when payment only takes a matter of minutes or a quick click of a button - your clients are much more likely to pay within hours or days of receiving an invoice, rather than weeks or months.
You can make it easy for your clients to make payments by offering the following:
● Providing a variety of ways to pay
● Moving payment online
● Offering automatic payments/direct debits
● Enabling payments by credit card
● Partnering with a third party to offer payment by instalment options (if appropriate)
Put a robust credit control process in place: ensuring you have a clear and robust credit control process in place, that considers every step of the payment process, will help reduce DSO; putting in front of your team a timeline of actionable tasks that must be carried out in order to achieve payment by a specific date such as sending out invoices immediately and following up after 14 days to confirm payment status.
Adopt a stricter credit approval process: it’s important to do business with clients you know you can trust to pay within a reasonable time, and who value the service(s) you offer. As such, it’s important to always carry out credit rating checks on new customers, set credit limits appropriately, and update credit information on a regular basis.
Put a receivables management strategy: alongside a credit control process, to reduce DSO, you also need to put a receivables management strategy in place - outlining a process by which your team follows up with clients within a certain amount of time following the delivery of an invoice or settles client disputes when they arise, as well as regularly evaluating performance against goals; finding solutions to actual and potential issues.
CreditForce and DSO reduction
By providing an end-to-end credit management software solution that focuses on cash generation, rapid query resolution and intelligent workflows, CreditForce has been proven to reduce DSO by at least 30%, alongside productivity gains of over 50% - an essential tool in our clients’ DSO reduction strategy.