Strategies to Reduce Days Sales Outstanding
A company can reduce days sales outstanding with:
• Better credit approval
• Better payment terms
• Better billing
• Better collection
Better credit approval includes:
• Accurately assessing customers’ credit risk
• Establishing a sensible credit policy that is consistent with the company’s strategy and making that policy transparent
• Setting a deadline by when credit decisions should be made
• Periodically reviewing the credit approval process
Better payment terms include:
• Standardizing payment terms for all customers
• Requiring upfront deposits or down payments
• Offering incentives for early payment (or penalties for late payment)
• Improving the customer-onboarding process
Better billing includes:
• Sending invoices quickly
• Ensuring that invoices are accurate
• Automating the billing process
• Creating an online customer portal
Better collection includes:
• Enforcing payment terms
• Creating an aging report
• Training staff for collections
• Improving the cash application process
Alternative ways to accelerate cash collections include:
• Factoring (selling receivables)
• Collateralized borrowing
• Securitizing the receivables
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