B2B companies experience longer days sales outstanding (DSO) on average. In the U.S. alone, it takes B2B businesses an average of 30 days to complete a payment, and around 47 percent of suppliers are paid late for their products or services, according to research from Deloitte. In addition, over 10% of late invoice payments are completely written off or considered as bad debt.
DSO is the average number of days a company takes to collect revenue for sales made on credit. It indicates how quickly customers pay and how much cash the company converts from credit sales.
When sales either go uncollected or take too long to get collected, it hurts the company’s cash flow and debilitates day-to-day operations. The shorter the DSO, the better. It means a shorter amount of time for the company to collect money.
So how do you reduce DSO and increase cash flow?
Here are four ways to reduce DSO for times for your company.
1. Automate DSO Business Processes
Based on a revenue cycle report by PayStream, automating the B2B debt collection process helps companies reduce DSO by 10% to 20%, past due receivables by 25%, and bad debt reserves by 15% to 25%.
Data released by Forrester Research shows that about 75% of B2B buyers prefer to purchase work-related products online, but a meager 25% of B2B companies sell online. This only highlights the need for B2B sellers to step up their game in a world where the internet dominates many aspects of modern living.
Web-based credit collections management systems are your best bet for streamlining e-commerce processes. They are easy to implement and can handle end-to-end services, from credit approval to collections.
Systems like Apruve even allow customers to check out now from an online store and pay later. It consolidates multiple orders, invoices them per month, and takes care of credit collections.
DSO Automation Can Provide Timely and Accurate Information to Customers
Incorrect charges or late invoices can result in lengthy, headache-inducing disputes. Late invoices mean late payments, and disputes entail additional administrative costs on your part, particularly where communications management and relevant paperwork are concerned.
To minimize the chances of human error creeping into your invoicing procedures, consider automating your DSO process, and automatically sending invoices to customers.
2. Reform Your Credit Extension Policy
Credit has become a necessary arrangement for small and large businesses alike. While it extending credit to customers offers a number of advantages, i.e. creating a strong base of regular customers, it also involves risks, such as incurring losses due to nonpayment.
Before extending credit to a new customer, consider the resources at your disposal. Would you have enough money to shoulder operating expenses while carrying receivables? Entrepreneur.com suggests that no matter how credit-worthy a customer is, “never extend credit beyond your profit margins.”
At the end of the day, a stricter credit policy decreases your risk of default payments. But too strict a policy may not prove competitive in the long term. Assess your tolerance for risk. Should you decide to be more liberal with your credit policies, gauge your willingness to do the legwork tied with credit management.
3. Offer More Payment Options to Your Customers
By offering more payment options, you’re making your customers’ lives easier, which can translate to faster payments processing. Mobile or digital wallets like PayPal, Google Wallet, and Apple Pay are just some of the alternative payment modes you can offer your customers.
Learn more about the Apruves payment platform here.
4. Ask New Customers For Downpayment or Deposits Upfront
Advance partial payments minimize the risk of defaults. Requesting them in advance also lets you assess the customer’s willingness and ability to pay.
Downpayment and deposit requests should be disclosed in your company’s terms and conditions. Generally, an amount equivalent to 20% to 50% of the commercial transaction forms part of the initial deposit. Although, because an advance payment is a risk on the buyer’s side, consider securing a bank guarantee to dispel concerns regarding your company’s possible nonfulfillment of contractual obligations.
Automate DSO and Increase Cash Flow
Selling on credit is one of the many ways companies attract both new and existing customers to purchase from them. It has become a way of life in today’s economy where competition is fierce.
Don’t waste time filling out paperwork, reduce your business’s DSO by automating your processes, and bring in more cash flow to your business.
Are you looking for a way to automate your B2B company's DSO and increase cash flow? Apruve can help. With Apruve, you can easily automate your days sales outstanding by extending risk-free credit to your customers, while Apruve ensures you get paid within days. Learn more about Apruve's credit network or contact Apruve’s specialists to sign up for a demo today!