Are you offering clients 0% payment terms without even realizing it? Our three-part series can help stop the insanity.
Days Sales Outstanding: Be responsive to everyone’s differences
Analyzing different areas of your accounts receivable functions is extremely important when ensuring your payment plans don’t have any problems. Checking your credit approval process (here) and your collections process (here) can help set how consistent clients are with payments. Now, we’ll be covering Days Sales Outstanding (DSO) and how it can help you set pricing and credit limits for each customer.
Evaluate your customers by DSO. Imagine knowing, by the client, how long it takes, on average, for them to pay you after you make the sale? What could you do with information that tells you, on average, that Customer A pays you in 20 days while Customer B pays you in 65 days? Would you continue to charge them the same price? Would you invoice sooner or advance bill certain clients in order to shorten the DSO? Would you update your cash flow projections to provide a more realistic picture of the impact that longer paying customers makes on your ability to pay your expenses? Most of our clients find this information extremely valuable in making decisions about pricing and credit limits to customers based on DSO and they find it useful in predicting cash flow.
With our approach, your accounting team and accounts receivable function should be paying for itself in the value, consistently applied processes, proactive approach, and predictive tools and information they provide the organization. If your organization is not doing this, Ask CFOSP How.
Shannon Carbone, CEO of CFO Strategic Partners
Shannon Carbone is the Founder and CEO of CFO Strategic Partners, a financial consulting firm headquartered in Central Florida offering CFO on demand, outsourced CFO, virtual CFO, and comprehensive accounting services for clients with either short-term or long term needs since 1999.