Reduce DSO in 8 easy steps

Days sales outstanding or “DSO” is one of several key metrics for a business owner in managing their business because invoices not paid on time, or within terms affect your entire cash flow system.

An increasing DSO value signifies that you are taking longer to collect money from outstanding sales, which can easily lead to cash flow problems. To manage this as a risk in your business, prioritize your collections process and ensure that your customer communications in this regard are enacted on a regular basis.

Here are 8 easy steps to consider in constructing a communications program to target rising DSO:

  1. Determine the metrics
    The time taken to collect on outstanding invoices can also be costly to a business, as time is money. Determine beforehand how much you will be spending on your collections campaign and the cost of the entire process. If you use a combination of registered mail and email, weigh up the costs and determine which campaigns have a higher rate of success. Most businesses don’t opt for ‘snail mail’ anymore. Digital campaigns are easier to track and measure, but both avenues may prove to be more successful.
  2. Decide on a primary method of engagement
    As we mentioned, sending letters via post may be problematic or slow but many businesses prefer to cover their bases by sending the collections letters via both post and email. There is also the spam box factor to consider. How many of your emails are being delivered to the recipients’ inbox? These factors will influence your primary method of a successful collections campaign.
  3. Construct an appropriate tone
    The tone of your letter or email shouldn’t appear as threatening or abusive. If you have a range of letters, consider the first one as a light humorous reminder, and then progressing to a more serious letter by the third. Consider all cultural nuances when constructing your collections notices. Be fair and respectful. Using an attorney to write your collections letter is the best approach to clients who ignore collections letters.
  4. If possible, add a personal touch
    Find a program or system that can personalise an overdues notice, as taking the time to acknowledge the recipient by name may mean a better business relationship. Better business relationships often influence timeous payments. Personal emails are more likely to be actioned than those that look like a standardised batch of notices. Personalisation also avoids the spam trap.
  5. Make it VERY easy to pay
    Include online links for payment – this will increase the chances that an overdue invoice is actioned quicker. Remember to make this a secure process as to mitigate the connotation of fraud.
  6. Consider your tempo
    Research shows that if clients are notified early of outstanding payments, they are more likely to pay on time. Therefore, remind clients ahead of time that payment is due. Don’t wait until the due date has lapsed to start reminding tardy payers. If a client has a history of paying 30 days later, it may not be worth the same treatment - as an internal policy of paying a month in arrears may be affecting the payment.
  7. A/B Testing is crucial
    The subject line and copy of your collections letter affects the likelihood of recipients opening the email and reading it. Testing different subject lines and copy for bulk lists is important as you will have a better understanding of what tone or layout is garnering more action.
  8. Is your software smart enough?
    Most accounting software includes automated collections campaign features. If you find that these features are not satisfactory, you may want to consider a third-party solution that can aid in your efforts. A collections campaign should be easy to set up and use. If the default automation in your software is not offering you what you need, start looking for a tool that can make this process smoother.

Applying these steps to your collections campaign structure can aid in quicker payment turnaround times and minimise any cash flow problems that may be affecting your business.

We are an experienced service provider in outsourced accounting services. If you require our input or advice, reach out to us at https://www.mmsgroup.co.za/contact/.



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