Days sales outstanding is one of the few finance metrics with a direct, mechanical link to cash. Reduce DSO by fifteen days and you have released roughly two weeks of revenue into the bank without selling anything.
The instinct is to chase harder. In our experience most of the opportunity is upstream of chasing.
The standard calculation is accounts receivable divided by revenue for the period, multiplied by the number of days in the period. Simple enough, but two refinements matter.
Split by cohort. A blended DSO hides the shape of the problem. Enterprise customers on 60-day terms behave differently from self-serve customers on card. Averaging them produces a number that describes nobody.
Separate terms from lateness. If your average terms are 45 days and your DSO is 52, your collection problem is seven days. If your terms are 30 and your DSO is 52, it is twenty-two. Those are different problems with different fixes — one is commercial, one is operational.
The invoice went out late. If you invoice in a monthly batch after close, a customer whose service period ended on the 2nd waits until the 8th before the clock even starts. Invoicing on the contract event rather than the calendar removes days at no cost.
The invoice was wrong. A disputed invoice is not a late invoice; it is an unpaid one, and the clock restarts when it is corrected. Wrong amounts, wrong entity, missing purchase order references and incorrect GST are the usual causes. Each is a data problem, not a collections problem.
The invoice went to the wrong person. Sent to your commercial contact rather than accounts payable, it sits in an inbox. Capturing the billing contact separately from the relationship contact is trivial and frequently not done.
Payment was made difficult. No payment link, no card option, bank details buried in a PDF footer, no reference for reconciliation. Every step of friction adds days.
Nobody knew it was late. If your ageing is only accurate after month-end tidying, you find out about a 45-day overdue invoice on day 50.
Automated reminders handle the majority. Reserve human contact for accounts that are materially overdue, strategically important, or showing a pattern change — a customer who always paid on time suddenly at 60 days is a signal worth a phone call, and possibly a credit risk indicator rather than an administrative one.
Do not optimise DSO in isolation. Tightening terms on a strategic customer to win seven days can cost more in the relationship than it returns in working capital. The point is to remove the days you are losing to your own processes — those are free.
We configure billing and receivables so invoices derive from contract data, go out on time, and age accurately without manual intervention. The collections improvement usually follows without anyone being hired.
Talk to us, or read about usage-based billing if your invoicing is consumption-driven.