What Is Days Sales Outstanding (Dso) And How Can An Order To Cash (O2C) Solution Help?


In the order-to-cash process, Days Sales Outstanding (DSO) is key performance indicator of the Financial Control Group, often closely monitored by the C-Suite. It measures the average time it takes company to seek payment after the sale of product or service. The lower the DSO, the better the companies cash flow position and overall operational efficiency.

Having reliable O2C solution can help to maintain and reduce days sales outstanding while providing enhanced visibility into customer accounts. By leveraging the system, finance teams can automate their order-to-cash process with streamlined management of invoices, payments, and customer credit. Here, we will guide you through how to use an O2C solution to calculate and optimise DSO.

Step-by-Step Guide

1. Create an Order Management Module: This first process in the O2C cycle involves order entry, order or customer verification and the customer payment. Therefore, the system should allow easy entry of customer order details either automatically from existing customer data in the system or by manual entry. it ishould also enable the customer to be notified about their order acceptance.

2. Configure for Automated Invoicing: The Order Management module should enable automated invoicing which sends out invoices to customers as soon as their order is verified. This process is key to ensuring Cash flow control, where customer invoices can be sent out directly to the respective customer, minimising delays.

3. Analyze Payment Terms: This involves setting customer payment terms. Establishing payment terms is an important step to ensure that customer dues are paid on time. Additionally, the system will help in analyzing the payment history of the customers and suggest terms accordingly.

4. Set up Credit Control: This involves setting customer credit limits and deciding at what point the customer should be asked to pay. Setting credit limits will help to prevent bad debts and maintain accounts receivable standards. reliable O2C solution should provide way to set customer credit limits, based on the customer’s credit criteria.

5. Automate Collections: The system should provide collection module that will simplify and expedite the payment collection process. it ishould enable the customer to make payments quickly, eliminating delays and frustrating conversations with customer finance teams. Automated collections will significantly reduce DSO by streamlining the process and reducing manual intervention.

6. Monitor Days Sales Outstanding: The O2C solution should have reporting system that allows users to monitor O2C cash flow and manage customer credit more effectively. This will allow the management to analyse performance, plan cash flow, predict customer payment behaviour and identify any potential opportunities or problems quickly. Additionally, the system should enable customers to be segmented and monitored according to their payment behaviour, such as delinquency and extensive ageing.

7. Control Cash Flow: Having system to monitor and analyse customer data is essential to ensure that cash flow is within budget and that customer payments are aligned with the companies cash requirements. This will enable the management to take timely action when necessary, ensuring that DSO is consistently managed.

An O2C Solution supports the full lifecycle of Order to Cash, from order management to collection, enabling companies to better manage cash flow, reduce DSO and optimise their financial performance. Finance teams can make informed decisions and easily monitor performance to identify potential opportunities and problems. Ultimately, using an O2C solution allows companies to better utilise their operational capabilities for long-term growth and success.