Days Sales Outstanding (DSO) is an indicator of a business’s overall financial health. DSO measures how long it takes to collect invoices or convert accounts receivable (AR) into cash. A lower DSO equals steady cash flow and comfortable access to working capital, and a higher DSO indicates clogged and inefficient cash flow.
Do you know that, as per the latest Atradius Payment Practices Barometer survey, 43% of B2B invoices are now overdue, and 5% are written off as bad debts, putting sustained pressure on cash flow? Also, most businesses try to speed up cash flow by delaying payments rather than improving collections. This can lead to financial stress and higher borrowings.
Order-to-cash outsourcing can be a strong enabler in ensuring businesses get paid on time, especially for growing businesses that lack an army of accounts receivable specialists to chase customer payments. With an experienced, scalable team at your disposal, you can track late invoices, follow up with customers, manage payment terms and customer communication, and ensure you get paid on time. This blog explores how businesses can improve DSO and cash flow in accounts receivable by following innovative practices and building the right capabilities.
1. Optimize Invoicing to Reduce Days Sales Outstanding
Efficient, accurate, and timely invoicing can positively impact your accounts receivable cycle and improve cash reserves and liquidity. Invoices should be raised the moment the goods are shipped or the services are delivered, not at a later date. The faster you get paid, the lower the DSO, and the more financial breathing room your business will have.
Very often, invoices are paid late because, once they enter the customer organization, they get caught up in a maze of issues, ranging from ending up in the wrong inbox or being misrouted to being identified as faulty or inaccurate. Most often, invoices are deemed inaccurate when wrong tax treatment is identified, or when pricing or quantities are mismatched.
Sending out accurate, timely invoices is the first step towards ensuring smooth collections. Essential details such as payment terms and due dates should be clearly stated. The billing addresses and other contact and payment information must be accurately captured in all communications.
Incentivizing early payments and offering diverse payment options such as ACH, credit cards, online payments, and digital wallets prioritizes a seamless customer experience and rewards good payment behavior. A self-service customer portal is another step in the right direction toward simplifying and speeding up the payment process.
Key Takeaway
Timely and accurate invoicing is the fastest lever to reduce DSO.
The sooner an invoice is raised—and the fewer errors it contains—the faster businesses get paid and improve liquidity.
2. Follow Best Practices in Credit Approval
According to a recent study by credit monitoring and risk management firm Creditsafe, which polled over 200 finance and accounting professionals in the US, 61% of companies say they do not analyze a potential customer’s credit history or late payment trends when onboarding or signing a new contract. Result? Over 81% said that they chase a customer between one and four times to get an overdue invoice paid, with many willing to wait between 31 and 60 days for a customer to pay, throwing DSO goals into disarray.
Establishing credit terms through a sound, strict credit application process is a very important responsibility of the AR accounting team. The AR department will establish the credit limit based on the customer’s creditworthiness and disclose payment terms, including payment deadlines, interest rates, borrowing terms, penalties, etc. Establishing good credit terms alone is not enough. Customers’ credit and payment history need to be reviewed regularly, with discounts offered for timely payments or terms revised for late-paying customers.
Key Takeaway
Strong credit policies prevent DSO problems before they begin.
Evaluating customer creditworthiness upfront and reviewing it regularly reduces overdue invoices and bad debts.
You can also read: The Emerging Role of Outsourcing in Sustainability Accounting
Select an element to maximize. Press ESC to cancel.3. Streamline Accounts Receivable Processes
Standardized processes documented as Standard Operating Procedures (SOPs) are key to eliminating billing errors and streamlining activities in the accounting department. The SOPs will ensure that invoices are accurate, tracked, and managed optimally, helping shorten invoice cycles, reduce exceptions, and maintain days sales outstanding within desired limits. The SOPs should be visible across the business.
The sales team must be aware of the SOPs and adhere to them in communications; customer service must stay updated on the information; and credit information must be reviewed and updated regularly. Having standardized procedures ensures hygiene, a strong AR foundation, and reduced DSOs.
All customer information, including contact details and credit terms, must be updated regularly to ensure billing accuracy.
Key Takeaway
Standardized AR processes create consistency and speed.
Well-documented SOPs reduce billing errors, internal confusion, and collection delays across teams.
4. Optimize the AR Strategy with Insights
Implementing advanced analytics and reporting delivers visibility across the AR cycle and ensures CFOs and finance leaders have accurate cash flow insights at a glance. Tracking expenses, generating accounts receivable aging reports, and analyzing operating cash flow are seamless when your team has the necessary technology and tools at its disposal.
Analytics goes hand-in-hand with automation. Automating manual processes will reduce errors, clean up and standardize data, and ensure accurate reporting. Automation frees up the AR team to focus on strategic, value-enhancing activities.
Analytics and automation help predict customer payment behavior, trigger invoicing and payment reminders, manage digital payment methods, and drive rule-based workflows in the collection process.
How Analytics and Automation Reduce DSOs:
- Automate invoicing and delivery to ensure invoices are accurate, complete, and sent immediately upon delivery of goods or services.
- Use predictive analytics to prioritize collections by identifying high-risk customers and invoices likely to delay payment.
- Implement automated payment matching to speed up cash application and reduce unapplied cash and disputes.
- Set up intelligent dunning workflows with automated reminders and escalation based on customer payment behavior.
- Track DSO drivers in real time through dashboards that highlight bottlenecks, disputes, and overdue trends early.
Comprehensive reporting and analytics capabilities transform AP data into a critical part of the enterprise resource planning system. Real-time visibility into current assets, payments, and liabilities, and their fluctuations, enables informed decision-making.
Key Takeaway
Visibility drives faster collections.
Real-time dashboards, predictive analytics, and automated workflows help finance leaders identify risks early and act before DSO escalates.
You can also read: How P2P Automation Outsourcing Drives Cost Savings
5. Partner with an Expert
Many organizations choose to partner with finance and accounting outsourcing specialists like us. Order-to-cash outsourcing brings specialized expertise, standardized processes, and automation that directly accelerate collections and reduce days sales outstanding. Our experienced, scalable AR teams ensure timely and accurate invoicing, proactive follow-ups, and disciplined credit management—reducing delays that typically inflate DSO.
Additionally, most established outsourcing partners, like us, leverage analytics and proven collection frameworks to prioritize high-risk accounts, resolve disputes faster, and improve cash application. You get access to real-time reporting and dashboards without investing in expensive software, incurring implementation costs, or hiring and training resources. The result is improved cash flow, lower DSO, and greater predictability—without adding headcount or operational overhead.
Key Takeaway
Expert partnerships accelerate results without adding overhead.
Order-to-cash outsourcing delivers immediate access to skills, technology, and best practices that reduce DSO and stabilize cash flow.
Conclusion
When businesses get paid on time, they achieve greater flexibility for growth and investment. Implementing SOPs, following best practices, leveraging analytics and automation, and partnering with order-to-cash outsourcing experts will help organizations ensure speed, accuracy, and cost control across their invoicing cycle, and at the same time improve customer relationships and build a reliable AR process that can scale efficiently with increasing volume and complexity of invoices.
FAQs
1. What is Days Sales Outstanding (DSO) and why is it important?
Days Sales Outstanding (DSO) measures the average number of days a business takes to collect payment after a sale. A lower DSO indicates faster collections, stronger cash flow, and healthier working capital, while a higher DSO signals delays in accounts receivable and potential liquidity issues.
2. What are the most common reasons for high DSO in B2B businesses?
High DSO is typically caused by delayed or inaccurate invoicing, weak credit approval processes, lack of standardized AR procedures, limited payment options, and insufficient follow-ups on overdue invoices. Poor visibility into customer payment behavior also contributes to rising DSO.
3. How does invoice accuracy impact Days Sales Outstanding?
Accurate and timely invoices reduce disputes, rework, and internal delays at the customer’s end. Clear payment terms, correct tax treatment, and up-to-date billing information help invoices get approved and paid faster, directly lowering DSO.
4. Can automation and analytics really reduce DSO?
Yes. Automation ensures invoices are generated and delivered immediately, while analytics help predict late payments, prioritize collections, and trigger timely reminders. Together, they reduce manual errors, speed up cash application, and improve overall collections efficiency.
5. How does order-to-cash outsourcing help improve cash flow?
Order-to-cash outsourcing provides access to experienced AR teams, standardized processes, and advanced analytics without increasing headcount. This leads to faster collections, fewer disputes, improved credit management, and more predictable cash flow—all contributing to lower DSO.
Ashish Gupta
