Every business knows the pain of waiting for payments. In fact, a recent Atradius report found that 50% of all B2B invoices in the US are currently overdue, with only 42% being paid on time. This widespread issue can tie up a company’s cash and make it difficult to operate.
That’s where Days Sales Outstanding (DSO) comes in. It’s more than just a number; it’s a direct measure of a business’s financial health and its ability to keep cash flowing. When this number is high, it signals a significant problem.
But you don’t have to accept slow payments. This guide will provide 8 practical, actionable strategies to reduce your DSO, speed up your cash flow, and put your business on a stronger financial footing.
Days Sales Outstanding (DSO) is a key metric that tells you how many days, on average, it takes for your business to collect payment after a sale.
It’s like a financial stopwatch: the moment you send an invoice, the clock starts ticking. A low DSO means you're collecting payments quickly, which is a sign of a healthy and efficient accounts receivable process.
DSO provides a simple way to measure your collection efficiency over a specific period, such as a month or a quarter. You can quickly get a general idea of your DSO by using this formula:
DSO = (Accounts Receivable ÷ Total Credit Sales) x Number of Days in the period
Example: If your accounts receivable is $300,000, and your credit sales for the same 30-day period were $200,000. Your DSO would be: (300,000 ÷ 200,000) x 30 = 45 days.
A number like 45 days shows that it's taking much too long to convert sales into cash. Your goal should be to lower this number and speed up the rate at which you receive payments.
A high DSO has a direct impact on your business's financial health, tying up capital and limiting your ability to grow. It means cash is stuck in unpaid invoices, limiting a company's ability to invest in new opportunities, expand, and manage daily operations.
A consistently high DSO can also signal underlying issues with your billing or credit policies. In short, reducing DSO isn’t just a financial goal; it’s essential for the long-term health and stability of your business.
Also Read: Understanding Cash Flow Management: Importance, Strategies, and Techniques
A high DSO isn't a permanent condition; it's a symptom of a process that can be improved. By focusing on a few key areas, you can significantly reduce the time it takes to get paid and unlock the cash currently tied up in your accounts receivable.
Here are eight ways to get your money moving faster and put your business on a more stable financial footing.
Reducing DSO starts with setting clear expectations from the moment a sale is made. Your payment terms and the way you present them can have a major impact on how quickly you get paid. By being proactive and providing clear incentives, you can motivate customers to pay on time or even early.
A thoughtful approach to your payment terms is the first step toward a healthier cash flow.
Also Read: Proven Debt Collection Techniques for Higher Recovery Rates
A confusing or late invoice can be a major roadblock to getting paid. Simplifying this process is a critical step in reducing DSO, as it removes common reasons for payment delays. By providing the tools and technology to simplify invoicing, you help ensure payments are received faster.
Discover how Tratta’s consumer self-service portal can put the power of payment in your customers’ hands.
Removing complexity from the billing process is a powerful way to get paid faster and build a stronger relationship with your customers.
When making an online purchase, if a website doesn't accept your preferred payment method, you're more likely to abandon the cart. The same principle applies to payments. By offering customers multiple ways to pay, you remove a major barrier to collection and make the process as frictionless as possible.
Turn every communication into a payment opportunity. Learn more about Tratta's embedded payments.
By providing convenient and flexible payment options, you empower your customers to pay when they're ready, which can lead to faster payments and a lower DSO.
Even with the best payment terms and simplest invoices, some customers will still pay late. To reduce DSO, you must have a strong credit and collections process in place. A passive, wait-and-see approach can turn a temporary delay into a long-term problem.
A well-defined collections process is your final line of defense against a rising DSO.
Build the perfect workflow for your business with Tratta's customization and flexibility features.
In the past, the collections process was often adversarial. Today, a more respectful and customer-centric approach is key to reducing DSO. By viewing customers as partners, not just debtors, you can increase their willingness to pay and improve your collection rate.
Building a positive relationship with customers not only makes the collections process smoother but also encourages faster and more positive outcomes.
To put these strategies into action, see how Tratta's omnichannel platform makes every conversation count.
One of the most common reasons for a rising DSO is a slow or disorganized dispute resolution process. When a customer has a question about an invoice, and that query gets lost or delayed, the payment can be put on hold indefinitely. By putting a system in place to resolve these disputes, you can remove a major bottleneck to your cash flow.
An organized approach to resolving customer disputes not only prevents payments from being delayed but also strengthens trust and helps accelerate your cash flow.
Also Read: How to Handle Debt in Credit Collections?
Improving DSO is a core financial goal. By using a data-driven approach, a business can gain a clear picture of its cash flow and make smarter decisions.
A data-driven approach to your finances helps you move from reacting to problems to thoughtfully planning for success.
See how Tratta's reporting and analytics can give you the insights you need to make smarter financial decisions.
Reducing DSO isn't a one-time fix; it's a commitment to ongoing improvement. The most effective businesses create a framework for regularly reviewing their processes, setting goals, and making adjustments.
An ongoing commitment to improving your cash flow processes is the key to lasting financial health.
Also Read: Employee Retention Strategies for Collection Agency Success
Reducing DSO is a strategic effort that requires more than just making a few calls. By refining your payment terms, simplifying your billing, and embracing a data-driven approach, you can take control of your cash flow and build a financially healthier business.
A modern solution like Tratta unifies all these advancements into a single, automated platform. It uses data analytics to give you the insights to prioritize accounts and forecast cash flow, while a secure self-service portal simplifies the payment process for your customers. This allows you to improve recovery rates and get paid faster, all while remaining compliant.
Ready to take control of your cash flow? Schedule a demo with us today to see how Tratta can help you reduce your DSO and get paid faster.
There is no one-size-fits-all answer. A good DSO is typically close to your payment terms. For example, if your payment terms are Net-30, a DSO of 35 days is good. If it's consistently above 45 days, it's a strong sign that you have a problem.
A low DSO is always better. It means your company is collecting payments from customers faster. A high DSO indicates that it's taking too long to collect on your invoices.
A decrease in your DSO means you are successfully converting your sales into cash more quickly. This is a positive sign that your accounts receivable process is becoming more efficient, which improves your overall cash flow.
Your DSO can increase for many reasons, including a disorganized billing process, lax credit policies, or a slow and inconsistent follow-up schedule on overdue accounts. It can also be a sign that more of your customers are struggling to pay on time.
