How do you manage and reduce your DSO (days sales outstanding) and bad debt in the order to cash process?

I agree with you regarding the credit policy, however, in this stage I would refer to the current credit procedure. Reducing the DSO is a collective responsibility from all members of the company, shortens at one function can result in increasing the DSO. For example, inefficient collection department can contribute in the increase of both DSO & NPL no matter how perfect credit policy you have. Likewise, analysis the portfolio and giving more attention to the early warning signals can also help in that. For sure a RAC can be adjudicated later on once the credit department do their analysis after taking of the points that you have mentioned. Respect ????

Es fundamental tener reglas claras antes de ofrecer crédito a los clientes. Definir con precisión los plazos, los límites y las condiciones de pago. Es necesario asegurarse de que todos los clientes las conozcan y acepten desde el principio. Además, revisar las políticas regularmente para que sigan siendo relevantes y efectivas, teniendo en cuenta cambios en el mercado y el comportamiento de los clientes.

"Tackling DSO and bad debt head-on is essential for financial success. Prioritizing effective collection methods and robust client engagement can significantly reduce risks and accelerate cash flow, allowing businesses to focus on growth with confidence."

Earlier also it is discussed only on the captioned subject regarding topic,avenues to the revenues zero finance costs, fund recognition project wise to be able and possible to run as budgeted, materials at site also to be claimed in the running bills, mobilization to be increased by the client by progress committed from project execution team

La facturación es crucial siendo precisa y a tiempo para evitar demoras o aclaraciones. Asegurar que las facturas coincidan con los detalles del pedido y entrega, y envíalas tan pronto como se complete el servicio. El envío electrónico ayuda a reducir errores y agiliza el proceso. También es importante incluir claramente la fecha de vencimiento y las instrucción de pago.

Without any doubt sending correctly prepared invoices to the right person within the right organisation is first and extremely step to receiving of timely payments. Importance of it, especially being coupled with timely issuance of invoices could not be anyhow overestimated. However, timeliness of billing has no impact on DSO as this ratio is calculated on accounts receivable, which become seen on consumers accounts only issuance of invoices. Quality of invoices helps to reduce overdue outstanding, but unfortunately DSO fluctuates independently for arrears, which has been prove by numerous test on thousands of AR portfolios. So, timely and qualitative billing is extremely important for business, but has nothing to do with DSO.

Mantener un control constante sobre las cuentas por cobrar es esencial. Usar un ERP que permita ver fácilmente el estado de tus facturas y los plazos de pago. De esta manera se podrá identificar rápidamente las cuentas vencidas o disputadas y actuar a tiempo. Además, tener un proceso claro para gestionar clientes morosos ayudará a evitar sorpresas desagradables.

The most direct way to reduce DSO is to shorten your payment terms. If giving your customers 30 days to settle your invoice is negatively impacting your cash flow, you could consider asking for it to be settled earlier. By paying date of invoice or if you have a good relationship with your customer you can ask for payments under 30 days. I had a DSO of 21 days at my previous company and it made a huge difference and impact in my collection and DSO

A veces, la negociación es la mejor salida cuando hay retrasos o disputas. Se pueden ofrecer un plan de pago o un descuento por pronto pago, siempre buscando una solución que beneficie a ambas partes. No obstante, es importante ser firme con los plazos y dejar claro que los pagos puntuales son fundamentales para mantener la relación comercial solida.

La prevención es clave para evitar que las deudas se conviertan en incobrables. Realizar revisiones periódicas del historial de crédito de clientes y ajustar límites de crédito según sea necesario. Si las deudas de impago se acumulan, es necesario considerar el uso de agencias de cobranza o servicios de factoraje para minimizar las pérdidas y recuperar lo que adeudan.

Reduction of Bad Debts has an undoubtful positive impact on business, its cash flow and profitability. In very general terms this presumes three main steps: - finding and aligning optimal terms of credit (payment term, credit limit and security) with customer's and suppliers - timely review of the terms when they lose their adequacy - effective debt recovery/collection when the counterpart is in arrears However, bad debts have a misleading impact on DSO, as provision accrued in relation to bad and doubtful debts reduces total accounts receivable and therefore, reduces DSO. The problem is not with bad debts and their level, but DSO and its use as a KPI.

Asignar debidamente los cupos de créditos y dise?ar adecuados controles para evitar sobrefacturación Entender que la cobranza no es simplemente tomar el teléfono y llamar, es una falacia. El proceso de cobranza, va mas allá, es estar con el cliente, crear relaciones a perpetuidad e incondicional, y repetirse "Si el cliente crece, yo crezco". Ayudarlo, y ense?arle como tener una sana y excelente salud financiera.

Credit Controller Runs into CFO’s office: - Boss, this month we reduced DSO by 3 days! - Wow! Do we have less overdue? - No. - Do we have less bad debts ? - No... - Congratulations, you are still Credit Controller. Any company needs more sales, less overdue and bad debts. DSO has nothing to do with either of these. Easy to prove - bad debts write off and provision, reduce total receivables and improve DSO ratio. If you really want to contribute to your company's success use absolute numbers! Cut your overdue outstanding and bad debts piece by piece every day. DSO is useful when we analyse counterparts and have limited data available. But this is not at all the reason to use it as a KPI.

DSO can be powerful as a KPI when you couple it with BPDSO and ADD. These three metrics together can help you set a strategy. A high DSO with a low ADD suggests variability in sales or a payment term problem. High DSO coupled with a high ADD suggests a delinquency issue. To truly interpret DSO, BPDSO and ADD must be included in the discussion.