Days Sales Overdue – (DSO score)
What is it and what’s yours?
Days Sales Overdue or DSO score relates to the average number of days it takes for you to receive payment after invoicing your customers.
It is important for your company to know what your average DSO score is, because it will show you how long it is taking you to get paid after sending an invoice.
If you have a high DSO score, it shows you that your company is not collecting payments quickly enough. Knowing your DSO is your starting point to finding out what you can improve on.
Generally speaking, a DSO under 45 days is considered low; however, what qualifies as a high or low DSO can vary depending on your business type and structure.
What happens when you don’t collect payment on invoices quickly?
When your customers don’t pay you on time, cash will not be coming into your business on a regular basis. Cash is of course what keeps you afloat.
A low DSO shows that your company collects it’s payments on invoices quickly.
So what can you do to reduce your DSO score?
1) Invoice your customers right away
The faster you send your invoice for payment after delivery of goods or service, the faster your customer is likely to pay you. This is because the sale of your product or service is still fresh on their mind. Hopefully they ordered your product or service knowing that they had available funds to pay you to terms.
2) Get rid of customers
A hard thought to process isn’t it?! However, chasing customers for payment for a service you have already provided costs you time and money. A customer that costs you money, reduces your profitability and increases your stress is often not worth keeping! Work out if it is worth keeping that customer who won’t pay on time.
3) Reduce your payment terms
Think about reducing your payment terms from 60 days to 30 days, or 30 days to 14 days. The way to do this is to inform your customers that payments are now required in full within 14 days of the invoice date. You can also discuss your payment terms with customers before they decide to purchase from you. Give them the choice and discuss the options available.
Remember
- Your DSO fluctuates with revenue and other short-term changes. Because of its tendency to fluctuate, analysing DSO on periods of less than a year can be misleading.
- DSO considers only credit sales, not cash sales.
Try out our free DSO calculator, find your score and work out if you need to improve.
For more information on how we can help you reduce your DSO and improve your cashflow click below to find out more about our professional credit control service.