The Days Sales Outstanding refers to the average payment time of a company's customers. It is closely linked to a company's working capital requirement. Consequently, the DSO acts significantly on the cash and the financial balance of a company. It is therefore essential for the company to follow the evolution of these figures very closely and very frequently. The company therefore has a duty to improve their DSO to properly fuel and improve its financial conditions. Read all about the DSO here.
The importance of DSO for a company
Days Sales Outstanding has a considerable impact on a company's cash flow. Having a good
dso formula is very important for the economic situation of a company. This indicator varies depending on the payment of customer invoices. The longer the customer takes his time to pay his invoices, the more the DSO will become important and the more the firm must incur heavy costs in order to be able to continue its activities. Therefore, its cash flow is exposed to many risks. This delay, if prolonged indefinitely, plunges the company into customer risk.
The DSO plays an important role in calculating the Working Capital Requirement. The latter determines the funds necessary for the company to continue its activities and the time in which the company can operate without the need for the unpaid bills quoted in the invoices. Good monitoring of the DSO allows the company to determine the performance of collections, but also to properly manage customer risk. It is also the cornerstone of good financial management.
How to reduce your DSO
Winning a war requires enough accurate information at the right time. Thus, your staff must be in possession of a well-detailed report at the right time to be able to find the causes of the increase in DSO in order to focus on the appropriate measures to reduce it. In the absence of automated customer accounts, you export information from an accounting system to use spreadsheets to calculate and analyze data. This causes a waste of time. To save time, automated accounts receivable solutions can provide your team with the information they need to identify the causes of DSO expansion. Thus, efforts can be prioritized to reduce DSO.