If you need to choose only one Cash metric, it's DSO, as it tells how quickly your B2B/B2C customers pay their sales invoices to you. riskrate can predict your customer behavior and invoices that not have been event sent yet, without a second of manual work. Sign up in 8 minutes, instantly see the results. → riskrate
DSO is the speed of your Cash in 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.
"Diamonds are created under pressure, and many wealthy S&P 500 businesses with positive cash, are utilizing the dynamics of payment times"
During the strong growth, the speed of incoming cash finance the high Cash burn. During the steady growth, the dynamics of payment times leave more euros to investments or to loans repayment. And during the downturn, Cash is king.
DSO ❤️ short payment terms and prompt payments
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.
Diamonds are created under the pressure
Speeding up DSO can be done in two ways: short payment terms and/or minimizing late payments. Build your cash engine on advance payments. Make sure you are invoicing promptly.