DSO (Days Sales Outstanding) is the average time taken to pay customers.
In other words, it measures the number of days it takes to collect an invoice.
This indicator can be used to monitor customer collection performance.
DSO formula
DSO = (Accounts receivable / Sales incl. VAT) × Number of days
In practice, DSO is used by :
- credit management teams
- sales teams
- financial departments
Why DSO is strategic for the company
A highDSO can pose a number of problems. It has a direct impact on cash flow.
The risks of high DSO
Firstly, cash flow remains blocked.
Secondly, the risk of non-payment increases.
Thirdly, the need for financing becomes greater.
The benefits of optimized DSO
Conversely, a lower DSO allows :
- improve cash flow
- reduce WCR
- secure cash receipts
This makes reducing DSO a top priority.
The main causes of high DSO
1. Customer overdue payments
Firstly, late payment is the main cause.
2. Inefficient billing process
Secondly, billing errors or delays slow down payments.
3. No structured reminder
What’s more, without clear reminders, customers pay later.
4. Poor follow-up on payment promises
What’s more, customer commitments are sometimes poorly followed through.
5. Lack of suitable tools
Finally, tools such as Excel limit management.
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How to reduce DSO effectively: 5 key levers
1. Implement a clear credit management policy
First of all, we need to define a clear framework:
- precise payment terms
- customer risk analysis
- credit limits
This way, you avoid unpleasant surprises.
2. Automate customer reminders
Next, the recovery must be organized.
It must be :
- regular
- structured
- automated
Thanks to collection software, you can save time and improve collections.
3. Use customer schedules
Timelines are also very useful.
They allow you to :
- secure payments
- transform an overdue item into a payment plan
- smooth cash flow
4. Track payment promises
Secondly, it is essential to follow through on commitments.
Indeed, a promise not kept is rarely paid.
To do this, you must :
- tracing promises
- relaunch on the right date
- analyze discrepancies
5. Real-time DSO management
Finally, a good tool makes all the difference.
Collection software enables :
- monitor DSO in real time
- prioritize actions
- analyze behavior
The role of teams in reducing DSO
Reducing DSO requires a collective effort.
Credit manager
First, it analyzes the risk and sets the rules.
Sales team
Secondly, it guarantees reliable billing.
Collection team
Finally, she reminds customers and monitors payments.
So coordination is essential.
Why Excel is no longer enough to manage DSO
Today, Excel is showing its limitations.
Its main limitations
- no automation
- no real-time tracking
- difficulty prioritizing
What’s more, conventional tools are often incomplete.
AI and DSO optimization
Today, AI is changing the game.
In particular, it allows you to :
- predict late payments
- target at-risk customers
- improve follow-ups
So it helps reduce DSO faster.
Reduce DSO to improve cash flow
In short, reducing DSO is essential.
To achieve this, you must :
- structure your processes
- better follow-up with your customers
- use the right tools
In this way, you improve your cash flow and secure your collections.
FAQ - DSO
How can you quickly reduce DSO?
By automating customer reminders and improving payment tracking.
What is a good DSO?
It depends on the sector, but should be close to the contractual payment terms.
Which tool to use to monitor DSO?
Specialized collection software enables precise, real-time tracking.
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