How can you reduce your DSO by using ROM?
November, November….why is this one of the most important times off currently, (well at least from a recovering overdue invoices perspective)
In many parts of the world, the Financial Year doesn’t end until April the following year, but November is a crucial time for many business’es out there, especially for those running a Accounts Receivable Team.
Firstly, November is the only full month before the end of the Year. Secondly, December is largely a struggle, as many a business are in full Christmas mood, operating at 2/3rds of their normal capacity. What am I getting at…Well, there those who are Credit Managers, and/or Recoveries Managers are placed under enormous pressure to ensure that they are meeting one of their most fundamental KPI’s (Key Performance Indicators). That is to ensure that the DSO is kept down and not to spiral out of control.
To those who are not au fait with what DSO means (no its not a sound system, or vacuum cleaner), it means Days Sales Outstanding. More information on the calculation is provided below:
DSO’s increasing or spiralling at this stage out of control are imperative to any business, especially during the last two months of the year, and a lull in the first half of Q1 for next year, where Businesses try to gather pace to create Cashflow so as to start satisfying their Creditors.
Naturally, DSO’s are split into three of four different buckets depending on your business model, and therefore follows on from the risk of Customer behaviour on how certain companies pay. Why, well some companies will split reporting into three different buckets, which are 30 days (low risk), 60 days (medium risk) and 90 days+ (high risk), whereas others will add a further denominator of 120 days+ (or accounts destined for legal)
But as we know it, the majority of those companies who fell into the 60-90 day bucket are likely to become problem customers to your business, because seasonally they themselves are suffering from their own cashflow transitions due from their own debtors, or lack of sales. This is also depends on whether you incorporate your legal accounts into your current DSO figures or not, or whether this is reported separately.
This is a crucial time for some Credit Departments, or Recoveries Managers who may have an influx of work, that is overstretching your current calibre of staff members, but those Customers that are facing serious problems may need your helping hand in getting them paid out to you in the long run.
Sometimes, by placing it with your third party supplier, they are usually best placed to advice you on anything that you pass to them. It may sometimes be that you pass everything to them, but there is usually a disconnect (crucially, the type of decisions that are being made before passing it out to a Debt Collection Agency, or your Solicitor depending on the type and value of debt at hand.)
- Have all angles been covered?
- Has the correct decision been made?
- Or is there a complaint which is now so old hasn’t passed through the ranks appropriately, been tackled?
At Douglas Carrington Associates, we understand how effective it is to leverage out your Bad Debts, or a portion of your Debtor list that could do with some nurturing before finding out if it is effective to take legal action. As specialists in Pre-legal work, and debt restructuring, we get to the bottom of why your Customer’s cannot pay and set up Effective and Meaningful measures to create a Win Win situation for all involved, and avoiding going to Court, meaning a better understanding is created for those Credit and Recoveries Managers in meeting their KPI’s.
If you have any questions, or need to off-set a portion of your ledger, then please feel free in giving Douglas Carrington Associates a try in managing your Customers, experiencing some of these issues through ROM (Recoveries Overflow Management), where a portion of your Debt to enable you to clear down your remaining debts more effectively.
If you found this Article useful, then please do not hesitate to contact the Writer for further information.