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Days sales outstanding (DSO) is a measure of the average number of days that it takes a company to collect payment after a sale has been made. By lowering your DSO, it provides options for you to keep the money and invest it, or pay off debt and lower your interest costs. Both of which are going to increase profitability and increase cash flow for you. How exactly do you do this? Here are our top 10 ways to decrease DSO and get paid faster.
1. Underwrite your customers. Make sure you know who you’re doing business with and that they can in fact, pay you.
2. Customer deposit. If it’s appropriate in your industry, make sure you’re getting some kind of customer deposit upfront.
3. Agreements. Have a contract, a PO (purchase order) or something in-place that allows you to have a way of collecting.
4. Collections process. Have a solid process for collections that starts with an invoicing process and then after a certain number of days, your team makes a phone call, you send a second invoice, etc.
5. Interest & penalties. In your contract, include interest and penalties or anything that’s going to help you collect faster.
6. Communication. Have non-stop communication with those you’re doing business with.
7. Relationships. Have your accounting team develop a relationship with the accounting team at your customers to ensure you get paid by having a good relationship with those that you do business with.
8. Offer flexible payment terms. This may sound counterintuitive, but if you offer flexible payment terms then you can hold your customers to them.
9. On-time invoicing. Start your invoicing a day or two early. Many times, companies won’t start their mature invoicing until after they have all of the data in; however, if you fix your business process where you have the data in on the front end, you can invoice it the last day of the month, the first day of the week, etc.
10. Provide a better product or service. People pay for things that they’re getting value out of. If you’re finding that your DSO is creeping up, you may want to think about quality and ask yourself if you’re delivering on the quality that you’re promising your customers. Ultimately the quality of your product or service will dictate how fast you get paid.
Matt Garrett is the Founder and Chief Executive Officer of TGG. He is a regular speaker across the country on behalf of Vistage educating business owners on the need for sound financial practices, and is Vice President of the Board of Directors of FINACA. Under Matt’s leadership, TGG has received the following recognition: INC. 5000 top companies in the U.S. five years in a row; one of “San Diego’s Fastest Growing Companies” the past four years; and is among San Diego’s “Best Places to Work.”
