What in the world is DSO?

Business

Greetings, business enthusiasts! I’m back with a new thought to share, I know that cashflow is the lifeblood of any business. Without it, even the most promising ventures can quickly dry up and wither away and even worse…. you have just enough cashflow to be frustrated and limit your business growth. So, let’s talk about how to use a daily sales outstanding process to target and improve your business cashflow.

First things first, what is daily sales outstanding? Also known as DSO, this process measures how long it takes for your customers to pay you. DSO is a vital metric for managing your business’s cashflow because it tells you how long your money is tied up in accounts receivable.

Now, let’s talk about why you need to use DSO to target and improve your cashflow. The longer it takes for your customers to pay you, the longer your money is tied up in accounts receivable. This means you have less cash available to pay your bills, invest in growth, or pursue new opportunities. Action items:

  1. Get the invoice to the customer as fast as you can, accurately.
  2. Use a customer communication website to chat, SMS, email and host all the pertinent invoice and payment data.
  3. Allow your customers to maintain their eCheck and card payments options that allowing for click and pay features. You may also be able to offset the credit cards fees by offering a built-in convenience fee, that your customers can opt out of by using the eCheck payment.

But, by measuring DSO daily, you can identify trends and patterns in your customers’ payment habits. If you notice that certain customers consistently pay late, you can take action to incentivize them to pay on time. You might offer a discount for early payment or require a deposit upfront. These measures can help you improve your cashflow and reduce your reliance on accounts receivable.

Let’s look at an example of improved DSO and the impact this can have on cashflow:

Annual Sales of $600,000 with Net terms averaging 30 days to your customers. In a perfect world they pay their invoices on the day they are due your DSO would be 30 days with your A/R averaging $50,000. But, in a non-perfect world…. if customers paid at 60 days you’re A/R would grow to $100,000 drastically impacting your cashflow.

Another way to use DSO is to target your collections efforts. If you know that a customer is consistently paying late, you can reach out to them before the due date to remind them to pay on time. You can also prioritize collections efforts on customers with the highest outstanding balances or those who have been delinquent for the longest time. By targeting your collections efforts, you can improve your cashflow and reduce the likelihood of bad debts.

In conclusion, using a daily sales outstanding process to target and improve your business cashflow is essential for any entrepreneur. By measuring DSO daily, you can identify trends and patterns in your customers’ payment habits, incentivize on-time payments, and target your collections efforts. So, start measuring your DSO today and implement tools to take control of your cashflow like the genius entrepreneur you are!

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