Days Sales Outstanding: 5 Ways to Improve Your Internal DSO
Carriers know that payment practices have deteriorated significantly in recent years. According to industry publications, the days sales outstanding (DSO) have recently risen to an average of nearly 60 days.
Days Sales Outstanding (DSO) is the average amount of time, expressed in days, customers take to pay for a load once it has been hauled. To understand DSO, consider a single haul: a carrier delivers a load on the 1st of the month, and the shipper pays on the 25th. The simple math tells us the number of days the sale is outstanding is 25.
Motor carriers have two ways to shorten DSO. The first, and most important, is to reduce the amount of time it takes to bill a customer after completing a load. This metric, internal DSO, requires an efficient document management process to ensure that proof-of-delivery (POD) documents are received quickly, without errors, from drivers. The more delayed a response, the longer internal DSO a fleet will have.
Why is this important? If a carrier has a way to permanently lower internal DSO it will shorten the collection period (external DSO) and greatly increase cash flow and put more money in the bank to cover operating expenses.
Basic Measures to Improve Internal DSO
Internal DSO can be improved immediately with a few basic, often simple measures:
The first step is to analyze your current accounting and document processes and look for ways to optimize them. Are bottlenecks or inefficiencies taking place? Can any tasks causing the delay be automated? Replacing manual processes with digital ones can speed cash flow and reduce costs. By taking a close look at your overall process, you can identify technologies and better workflows to make permanent improvements.
Once you’ve identified areas where your internal DSO processes can be improved, the next step is to automate as many tasks as possible. Automation can help reduce errors, speed up processing times, and free up your staff to focus on more important tasks. There are a number of software solutions available that can help you automate and expedite document management and accounting. Find one that best fits your needs and start reaping the benefits of automation today.
Another way to improve internal DSO and collections is to digitize as many tasks as possible to eliminate errors. By digitizing the process of document approval, for example, you make it easier and faster for your customers to make payments. There are a number of other benefits to digitization, such as helping reduce paper waste and saving storage space. If you haven’t already done so, consider investing in new digitization capabilities.
Another way to improve your DSO is to integrate your document management system with other systems within your organization. For example, if you integrate document management with an accounting system, you’ll be able to automatically generate invoices and update account balances in real-time, which will increase efficiency and eliminate errors. There are a number of other benefits to integration and new options that will best fit your needs.
Finally, don’t forget the importance of communication throughout the process. Keep lines of communication open with your customers and partners and make sure they’re aware of when invoices are due and how they can make payments. By keeping everyone on the same page, you can avoid misunderstandings and late payments.
DSO is an important metric for carriers because it directly impacts cash flow, which impacts everything else. Tracking your DSO metrics and improving them should be an ongoing improvement project with key metrics that can be part of a standard weekly or monthly financial executive-trends report. If you are regularly monitoring DSO, you can begin to manage it, and in the process, greatly improve your company’s cash flow.