Today when many invoices are issued, it is necessary to ensure that the DSO is not high. This could have negative effects on cash flow and working capital. It is for this reason that it is essential to reduce your DSO when it is too high. But what are the indicators indicating the need to reduce its DSO ? Find out all about it below.
The evolution of the DSO is not automatically due to an increase in the delays on the accounts. You can track this with accounts receivable software. Remember to first check the pending debt rate to be sure that this is not the source of your problem. If the delay in receivables has not increased, or is increasing only slightly compared to the DSO, then it is necessary to reassess the payment terms. You can do this by having a longer payment term combination or by having your sales department use terms more aggressively to increase orders. However, think first of all to put in place a balanced solution suitable for the public without penalizing your company. In other words, if the percentage of late receivables has increased, you must focus the effort of your teams on those accounts that have late payments.
Days of delay and cost of credit
First of all, it is necessary to determine which account contributes to the increase in DSO, then to identify which invoices are overdue and what the amounts are. It must be ensured that invoices with a large number of late payments are paid in priority. The sudden fluctuation of the days of delay can often be caused by the presence of unresolved disputes or an update of the economic condition of a customer. This may require additional follow-up actions. You should also keep an eye on the cost of credit. Learn about the cost of displaying customer accounts. This is the right solution to focus your team on collection priorities.