Live DSO: What Controllers Need to Know?

Days Sales Outstanding (DSO) is a number of days it takes for a customer to pay sales invoice. Bring a live DSO per a customer or live DSO all customers to your Power BI using riskrate. Live DSO, calculated on a daily basis using live invoice data, is an accurate KPI to follow your money flow - enabling you to react instantly. It's much better than a DSO, calculated on a monthly basis, using Balance Sheet. a LIVE DSO tells how long it takes for your customer to pay a sales invoice to you.

Why a LIVE DSO is important?

Diamonds are created under pressure, and Controllers in many wealthy S&P 500 businesses with a positive cash flow, are utilising the dynamics of payment times.

Controllers only use a very simple rule of thumb: keep live sales invoice payment time (DSO = Days Sales Outstanding) shorter than purchase invoice payment time (DPO = Days Purchase Outstanding).

If there is a difference in the payment times, cash problems are arising both in good and hard times. During the strong growth, speeding up cash-in is important due to high burn. During the steady growth, the dynamics of payment times leave more money to pay your investments or the loans. And during the downturn, cash is king.

How to benchmark LIVE DSO against the industry, earlier DSO and a DPO?

Customers pay their invoices on time only in a perfect world.

Live DSO tells the realised payment time of all sales invoices. Live DSO is based on the Customers actual payment time: from the date when invoice has been sent to the date when the customer has paid the invoice. LIVE DSO is using real-time invoice data: using live data you can react instantly, if needed. LIVE DSO tells the payment term and the realised late payment.

The direction of the DSO is always much ore important than the absolute KPI value. A great goal is to improve DSO faster than the industry, earlier DSO or your DPO (Days of Purchase Invoices Outstanding). Using riskrate, you can follow how your customer is paying to you and to the others. It helps to keep your DSO faster than your industry or a DSO faster than the DPO (payment time of your purchase invoices)

If the payment time of purchase invoices is 30 days, set your DSO target to 14. Money from sales invoices comes faster to your bank account than purchase invoices leave. How to use a LIVE DSO to speed up the money flow?

Speeding up DSO can be done in two ways: negotiating payment terms shorter and keeping the late payments in control.

Build your cash engine on short payment terms: negotiate your payment times faster than your DPO. Make sure your finance team is invoicing promptly. The environment is changing rapidly right now. If you need to make better decisions faster, we’d love to serve you - fast.

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