The Use Of Order To Cash Solutions For Dso In Finance
WHAT IS DSO IN FINANCE
There exists wide range of order-to-cash (OTC) solutions that can be used to reduce days sales outstanding (DSO) within the finance department. DSO measures the average number of days it takes company to collect payment from its customers. An efficient OTC solution allows company to identify and track customer payment habits, as well as set credit limits and track aging accounts. This can be an invaluable tool for finance departments seeking to reduce DSO and streamline the order-to-cash process.
Developing an effective strategy for OTC management can help finance team ensure that payment is received in timely manner, thus reducing DSO. Such an approach can be tailored to an organizations specific requirements and offer them viable solution for driving business growth. It can also provide real-time visibility into customer accounts, bank reconciliations, and payment trends, allowing financial teams to identify potential issues and make necessary adjustments.
To begin the OTC process, organizations must determine the most effective methods for tracking customer payments. The first step is for finance teams to develop comprehensive overview of their customer’s order-to-cash process. This should include an understanding of the customer?s order and payment terms, their customer type and its associated payment terms, and any payment-related policies and methods the customer may be using. Finance teams should also familiarize themselves with the customer’s culture and any financial or legal constraints that may be in place.
Once comprehensive overview of the customer?s payment process is established, finance teams should look to create system that works with the existing payment terms, while also taking into consideration any payment policies or constraints. This should include the customer?s required payment threshold and consider the necessary steps to ensure customer payment terms are met. It is important to consider both customer and company needs when creating the payment cycle, ensuring that customer payment terms are honored while simultaneously reducing the days customer payments remain outstanding.
Companies can also leverage OTC solutions to optimize manual processes. In many cases, manual processes can take considerable amount of time and resources, with errors occurring during the process often exacerbating the problem. Automating the customer payment process can be extremely beneficial, allowing organizations to automate manual tasks and streamline their customer payments. Additionally, integrating OTC solutions into financial software packages can provide an end-to-end view of the customer payment process and improve the accuracy of payments received.
Finally, effective communication is necessary in order to successfully reduce DSO. Organizations should strive to develop payment reminder system that works effectively for both the customer and the company, allowing for clear communication between both parties. This includes developing effective communication tools, such as email notifications, statement-based payments, and automatic payment procedures, that make it easy for customers to track and manage payments in timely manner. Additionally, organizations should also provide payment reporting, as this can provide an at-a-glance overview of customer payments and any adjustments necessary to ensure timely collection of payments.
In conclusion, incorporating an OTC solution into an organizations finance department can have significant implications in reducing companies days sales outstanding. By understanding the customer?s order and payment terms, creating an effective payment system that works within any pre-existing payment policies or constraints in place, optimizing manual processes and leveraging effective communication tools, organizations can ensure timely payment collection, thereby reducing DSO and increasing customer satisfaction.
