How can I reduce my DSO period?

How to Reduce DSO: 7 Strategies for Better Accounts Receivable Management

  1. Step 1: Set Realistic DSO Targets.
  2. Step 2: Review Your Payment Terms.
  3. Step 3: Get Better at Credit Risk Management.
  4. Step 4: Improve Your Invoicing Practices.
  5. Step 5: Improve Your Collections Practices.
  6. Step 6: Increase Visibility.

How do you calculate days in DSO?

How is DSO calculated? Days Sales Outstanding = (Accounts Receivable/Net Credit Sales)x Number of days.

How do you reduce outstanding receivables?

Here are six often overlooked steps you can take to reduce your average accounts receivable days outstanding.

  1. Send the invoice immediately.
  2. Be clear about your payment terms on the invoice.
  3. Send a gentle reminder to the customer before the invoice due date.
  4. Initiate action as soon as the invoice is overdue.

What does a decrease in DSO mean?

A low DSO value means that it takes a company fewer days to collect its accounts receivable. That company is promptly getting the money it needs to create new business.

What factors affect DSO?

DSO is affected by a large number of factors: Questions and Answers By Steven Kozack and Michael Dennis

  • Sales volume.
  • Monthly sales volume changes.
  • The timing of sales [example: sales late in the month tend to increase DSO]
  • The timing of collections.
  • The terms of sale offered to customers.

Why is reducing DSO important?

Reduce DSO, increase cash flow On the other side of the transaction, businesses that fail to pay their invoices in a timely manner may do so in order to benefit their own cash flow. Businesses that have to wait to be paid, face increasing levels of risk; the longer the wait the higher the risk of payment default.

How do you calculate DSO days in Excel?

Days Sales Outstanding = Average Receivable / Net Credit Sales * 365

  1. DSO = $170 million / $500 million * 365.
  2. DSO = 124 days.

How do you calculate AR days?

Calculating Days in A/R

  1. Add all of the charges posted for a given period: 3 months, 6 months, 12 months.
  2. Subtract all credits received from the total number of charges.
  3. Divide the total charges, less credits received, by the total number of days in the selected period (e.g., 30 days, 90 days, 120 days, etc.)

How can we reduce unapplied cash?

How to prevent unapplied and misapplied payments

  1. Create, monitor and staff an unapplied cash account.
  2. Establish internal controls.
  3. Assign each customer a single account.
  4. Establish a deduction write-off policy.
  5. Communicate with customers.
  6. Strive for accuracy.

Do you want higher or lower days sales outstanding?

Since days sales outstanding (DSO) is the number of days it takes to collect due cash payments from customers that paid on credit, a lower DSO is preferred to a higher DSO.

What is the DSO formula?

The days sales outstanding formula is: DSO = (Average Accounts Receivable / Total Credit Sales) x (Number of Days)