A high Days Sales Outstanding (DSO) has a tremendous impact on cash flow and revenue and can prevent you from moving your business forward. Reducing DSO, even slightly, can go a long way toward improving financial health. So let's look at some strategies for managing cash flow gaps and reducing DSO.
Optimize your invoicing processes.
Think about the person at the other end that opens your invoice. Often it is someone in an accounting department who is not familiar with who you are and what products or services you have provided. Does your invoice provide the exact information they need for a quick approval?
There are several ways your business can focus on improving internal processes to speed up the payment process. Something as simple as having your customer’s required information properly inputted and formatted on the invoice is very important. Some customers prefer to have a Purchase Order included, others are happy with just an AFE. All these informational rules can be automated to ensure accuracy before the invoice is sent. Knowing what each customer expects and accurately presenting it is key to preventing rejection of your invoice.
Make it easier for customers to do business with you.
Providing multiple payment methods - such as credit cards, automatic payments, or an online option provides greater flexibility for your customers which results in improved cash flow for you. In the 2017 Electronic Payments Report from Paystream, businesses that rely on cheque payments experienced the most late payments, fraud, and missed discount opportunities compared to organizations with a diverse mix of payment methods. By offering multiple formats for accepting payment, you have the ability to reduce lengthy sales cycles and even eliminate late payments.
Consider factor financing.
Many invoice financing options are available to finance slow-paying accounts receivable and improve your working capital - such as equity investment, bank loans, and factoring. Which product is best for you generally depends on the size of your company, its financial strength, and your specific needs. Factoring is unique because it is available for companies of any size, including startups with a limited sales history. This type of capital is often a much more accessible form of financing because factors rarely require assets as collateral and the risk for a factor depends less on your business and more on your customers’ paying history. Applying for factoring is almost always faster than a line of credit or a term loan, and is something you can put in place at any time for the future and only use when required.