Reducing and improving DSO: how do you lower your Days Sales Outstanding?
Control over your working capital
Looking to reduce DSO within your organisation? Lowering and improving your Days Sales Outstanding (DSO) is the fastest way to strengthen cash flow and boost working capital. In this article, we explain what DSO is, how to calculate it, and how targeted actions and automation can help you achieve a structural reduction in your DSO.
Trusted by organisations worldwide
They already use Onguard debtor management
What is DSO (Days Sales Outstanding)?
DSO stands for Days Sales Outstanding. It is a critical financial KPI that indicates the average number of days it takes for a customer to pay an issued invoice.
- From a financial perspective, DSO serves as a direct indicator of your cash flow health. The lower the number of days, the faster your organisation gains access to liquid funds to invest, innovate, and cover fixed operational costs.
- From an administrative perspective, DSO provides clear insight into the efficiency of your credit management and debt collection processes within the finance department.
FinTech Baropaper Insight
The reality of today's market
Findings from our annual Fintech Barometer show that payment terms are under significant pressure. Currently, only 30% of organisations receive payment within 30 days (down from 44% two years ago). Businesses are waiting longer to get paid, placing a heavy strain on liquidity.
How do I calculate my DSO?
Calculating your Days Sales Outstanding provides a concrete metric regarding the status of your outstanding invoices.
The standard DSO formula:
DSO Formula:
=
Total credit sales
×
Number of days in period
Automated debtor management: How does it work?
In a data-driven world, Excel is no longer a viable option. Automated debtor management means software takes over repetitive tasks.
Imagine this: the software 'spots' that an invoice is due. On day 1, the system automatically sends a friendly reminder. If the customer does not respond, a second message follows a week later. Only if that remains unsuccessful do you receive a task: "Call this customer". This ensures you are always consistent and on time.
Watch the video to see how Onguard works
Calculating DSO in Excel vs Automated
| Method | How it works | Pros / Cons |
|---|---|---|
| Excel / Spreadsheet | You divide total outstanding receivables by credit sales and multiply by 365 (or 30/90 days). | ❌ Error-prone, manual work, static, and quickly outdated. |
| Automation (Software) | Advanced credit management software imports real-time data directly from your ERP system. | ✅ Always up to date, eliminates human error, provides instant insights via dashboards. |
What is a good DSO score?
What is considered a 'good' or 'healthy' DSO depends heavily on your industry and agreed payment terms:
- General benchmark: In an ideal situation, businesses aim for a DSO under 40 days.
- B2C / Retail: Typically features a very low DSO (due to immediate payments or short payment terms).
- B2B / Complex supply chains: May see a DSO between 60 and 90 days due to extended payment terms across the chain.
Why is improving your DSO score important?
A high DSO means that an unnecessary amount of working capital is trapped in outstanding invoices. Furthermore, the risk of bad debt increases exponentially the longer an invoice remains unpaid.
5 practical tips for direct result
How do I reduce my DSO effectively?
As a finance team, you ask yourself: how do I effectively lower my DSO? The first step is to optimize and streamline your credit management process:
- Invoice immediately upon delivery
Do not wait until the end of the month. The sooner the invoice reaches the customer, the sooner the payment term begins. - Ensure 100% data quality at the source
More than 20% of late payments are caused by incorrect invoices. Examples include wrong purchase order (PO) numbers, incorrect billing details, or missing attachments. - Segment your accounts receivable portfolio
Not every customer requires the same approach. Segment based on risk profile and customer value. Send payment reminders sooner or phone high-risk clients immediately once the due date passes. - Provide seamless payment options
Make paying as easy as possible for your customers. Add payment links (such as credit card, online banking, or QR code links) to your digital invoices and reminders. - Personalise your communication
A personalised approach when sending reminders and payment requests is proven to deliver faster results than a standard, aggressive demand letter.
Structurally reduce DSO with Onguard automation
Replacing manual tasks with intelligent automation ensures a lasting reduction in your DSO. Onguard's credit management software solutions (such as CreditManager and CreditNext) integrate seamlessly with ERP platforms like SAP and Microsoft Dynamics.
- Automated workflows: Send the right reminder to the right person at precisely the right time.
- Risk management with PolicyManager: Streamline your credit insurance management and policy administration.
- Automated escalation via CaseControl: Hand over unpaid accounts seamlessly to debt collection partners whenever necessary.
Proven success: ManpowerGroup reduces DSO
Tangible real-world results demonstrate the impact of automation. ManpowerGroup was seeking greater insight into their global data streams and chose Onguard's software solutions:
Frequently asked questions about DSO
What does DSO stand for?
DSO stands for Days Sales Outstanding. It indicates the average number of days an organisation must wait for issued invoices to be paid.
How can I reduce my DSO quickly?
You can lower your DSO quickly by invoicing immediately upon delivery, ensuring invoice accuracy, adding payment links, and automating the reminder process using credit management software.
What is a healthy DSO ratio?
A healthy DSO generally ranges between 30 and 45 days, depending on your industry sector and the payment terms agreed with your customers.
Why is manual DSO calculation in Excel ill-advised?
Manual spreadsheet calculations are prone to error, time-consuming, and fail to provide real-time insights. Automated software integrations with your ERP system eliminate human error.
Start improving your DSO today
Would you like to know how much working capital your organisation can free up by reducing your DSO? Our experts are on hand to help you optimize your credit management processes.