Collections Recovery: Reducing Your DSO

The most common challenge for suppliers selling products and services to businesses on open terms is the recovery of invoiced receivables within a timely manner.DSO or “days outstanding” refer to the average number of days an invoice is actually paid regardless of the net terms actually sold. In today’s cash strapped business environment, many companies aren’t paying their invoices to their suppliers within agreed upon terms and businesses in all industries are feeling the effects of interrupted cash flow as they wait for their customers to make payment.

In response to the domino effect of the cash drain caused by slow paying customers, many suppliers attempt to create their own internal collections departments and take on the burden of collecting their own invoices. This tends to be an ineffective and costly process for most companies due to the skill and advanced systems required to be effective in recovery. It is critical not to allienate customer relationships while attempting to collect a debt and many companies do not strike a balance between utilizing both soft and aggressive approaches to collections resulting in limited success with consistent and timely recoveries. The net result for businesses that attempt to collect in-house without the necessary systems afforded to most collections companies are higher operating costs and inefficient results leading to longer DSO cycles that contrinue to drain company cash flow.

Outsourcing the collections efforts of a company’s accounts receivable simply makes good business sense. While there are many different collections programs on the market today, they are not all created equal. The longer a debt remains unpaid  the likelihood of default increases, and therefore, it is important for companies to turn over their delinquent accounts sooner in the delinquency cycle than later. Debtors turned over to the right collections company earlier in the process are handled with care and the softer approach greatly increases recoveries while older debts are handled more aggressively. With a two step process to collections recovery, DSO is proven to get shorter and shorter for many companies at low cost surprising to many business owners.

With companies struggling to gain market share and capital becoming less and less available, businesses must improve their collections recovery programs in order to survive. Outsourcing these functions to a reputable collections firm - early in the game - is a wise decison and is proven to reduce the amount of time receivables are recovered at a cost lower than in-house programs. In our next article, we will discuss the different type of programs available and the various approaches that can be implemented.

Have a question about collections recovery? Feel free to post on this blog or contact us directly at 1-631-585-0960.

Reducing DSO: The Biggest Challenge for CFO’s

As an accounts receivable risk strategists, we speak with many CFO’s about their challenges as it relates to accounts receivable management, and time and time again, the most common concern most CFO’s share is the inability to collect outstanding invoices within a reasonable amount of time. It’s a fact that most companies are subject to the same vicious cycle - where outstanding invoices are paid many days beyond original terms limiting access cash to cover operational costs and the ongoing funding needs of the business.

A recent poll currently active on LinkedIn asks company executives in the New York, New Jersey, Pennsylvania, & Delaware areas to indicate what their biggest challenges are as it relates to managing their accounts receivable, and at of the time of this writing, a small sampling of CFO’s have reported that reducing the number of days outstanding (DSO) is the biggest challenge for them.

The results of the poll are noted below:

The results of this graph illustate that not only are companies finding it challenging reducing their DSO, it also indicates that they do not have the right systems in place which could help them significantly reduce the number of days outstanding and get paid sooner.The key to successfully reducing DSO is having access to systems that automatically and systematically communicate with debtors in a non-alienating way as soon as invoices become delinquent. Delinquent customers must be contacted -early in the game- utilizing multiple communication channels simultaneously such as phone, direct mail, email, and fax, at regular intervals until invoices are paid. The key to success at this early stage of delinquncy is utilizing a collections company who has already invested millions of dollars in these systems, allowing you the ability to outsource these functions while your staff concentrates on your core business. Imagine if you had the ability to log in to a secure website and enter the names of your debtors that are currently delinquent.  Think about how valuable it would be to your company if a series of phone calls could be made and friendly reminder letters sent on your behalf to your clients, allowing you the ability to jump start the process of recovering your funds early in the process, without the headache of managing the effort yourself.  How beneficial would it be to have access to status reports online, within a password protected website, summarizing the number phone calls made, letters mailed on your behalf, and results of each contact?  Think about how your cash flow could improve as a result of utilizing this system as checks arrive in your mailbox on a regular basis while all of the tedious follow up work is done for you at a fraction of the cost that most collection companies charge their clients? Utilizing such a system for your collections process can greatly improve your cash flow situation, reduce your costs, and free up your staff to do other revenue producing jobs within your organization. As consultants for one of the largest international trade risk management organizations,  we would be privileged to demonstrate how this system can work for your business. It is super easy to implement and is highly effective in recovering your funds in the quickest amount time, at a cost you simply cannot ignore. Many companies are struggling with cash flow and are shuffling around funds trying to keep up with the demands of their suppliers who are also trying to collect open invoices. It’s a fact that certain companies do a better job at collecting their money than others, and when you, as our client, plug into our accounts receivable early collections system, you will have an advantage over your competition and will begin to see how your customers begin to prioritize payments to your company. In fact, we will put our money on the line and give you an opportunity to try our system at no cost for a limited number of debtors, assuming your company qualifies. Contact us to learn more about how our early collections recovery system can help reduce your DSO and greatly improve your cash flow. Have a question about collections recovery? Feel free to post on this blog or contact us directly at 1-631-585-0960.