Cash may be king, but almost every business faced the issue of extending their clients’ credit, especially in B2B situations. Recent low inflation and interest rates have made it easy for many businesses to ignore the true cost of extending trade credit to clients.

Even the most profitable products and efficient workflows can quickly lead to disaster if clients are not paying their bills. Complacency surrounding inefficient invoicing and payment collections can easily turn into write-offs that hit your organisation’s bottom line.

Benchmarking and monitoring Days Sales Outstanding, or the more specialised permutations of DSO, form a key part of any analysis of cashflow and receivables. In the end you will need to do more than just hassle your slow-paying clients and call in third party debt collectors.

To dramatically reduce your DSO over the long term, consider the following:

  1. Making it easier for your clients to transact 100% electronically with you as a supplier
  2. Segmenting your client base; tailoring credit terms and payment options to client segments
  3. Offering simple carrots for rapid or upfront payment.

While modern ERP and accounting systems are excellent at managing invoicing and payments internally, they don’t address many of the real procurement issues that lead to slow payments.

Electronic data interchange allows businesses to automatically exchange information between each other’s ERP systems or key business applications. This offers a very real opportunity to dramatically reduce the amount of human intervention required in the end-to-end sales-to-payment process.

A key issue that leads to slow or disputed invoice payments is incorrect or missing information. By shifting to EDI or eInvoicing with your trading partners data entry errors are almost entirely eliminated. You’ll also achieve more timely visibility into supply chain and invoicing issues.

Ideally, if you want to slash your DSO in the longer term, you should focus on continuously reducing the end-to-end friction of doing business with clients.

While you are likely to always need to extend trade credit to regular clients, you can reduce procurement and invoice related delays and overheads for both you and your client. By improving your competitiveness and efficiency, you will have much more flexibility when deciding how you want to optimise your trade credit terms and margins.