If you need to choose only one Cash metric, it's DSO, as it tells how quickly your customers pay their invoices to you. This is why riskrate tells DSO and DPO for you always automatically in realtime.
DSO is the speed of your incoming money flow 💰
Diamonds are created under pressure, and many wealthy S&P 500 businesses with positive cash flow, are utilizing the dynamics of payment times. They only use a very simple rule of thumb: keep sales invoice payment time (DSO) quicker than purchase invoice payment time (DPO). If there is a difference in the payment times, cash problems are arising both in good and difficult times.
During the strong growth, speeding up incoming cash is important due to higher burn. During the steady growth, the dynamics of payment times leave more euros to invest or to payback of loans. And during the downturn, cash is king.
DSO loves short payment terms and prompt payment times ❤️
Customers pay on time only in a perfect world. DSO tells how many days it takes for your Customer to pay their invoices to you. The DSO is the agreed payment time added by the late payments. The trend of your DSO is always more important than the absolute metric value. A great goal is to have DSO faster than industry or your purchase invoices. Even small changes matter.
If the payment time of purchase invoices is 30 days, set your DSO target to 14. Money from sales invoices comes double faster to your bank account than purchase invoices leave.
Use short payment times and advance payments with your Buyers 💎
Speeding up DSO can be done in two ways: short payment terms and/or minimizing late payments. If you're in saas, build your cash engine on advance payments. Make sure you are invoicing promptly.
Invoice financing as an alternative to speed up DSO ✔️
The biggest buyers with long payment times are the worst for your Cash. In this case, when the buyer’s predicted payment time is longer than your DSO, use invoice financing, factoring, or the sale of receivables.
Factoring means that you are selling your open sales invoices and get cash. In factoring, your funding costs depend primarily on your credit rating, buyer payment times, and the number of invoices.
When considering your total costs, compare annual costs (monthly rate x 12 = annual costs), and also it's good to remember, that smooth invoice processing reduces alternative costs (manual work). The most advanced invoice finance services do it fully automatically.
Supply chain finance in the current negative yield environment 💲
Cash-positive large corporations are facing challenges in the current negative yield environment. Cashflow is flying in, but banks are charging, not crediting, for the funds sitting as on bank accounts. In supply chain finance, your funding costs depend mainly on your large corporate customer’s credit rating. Also, the dynamic discounting model is something that corporates create to obtain optimal cash discounts from you as a supplier. This is a digital cash discount auction for suppliers and has a direct impact on profitability and ROCE, the return of capital employed.
riskrate is an effortless 30 - 90 days cash forecast, yet with superior accuracy. Put the data and machine learning to work for you. ⚙️