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In my first blog, I discussed how today’s economy could change, leaving companies hurting as a result of higher interest rates, leading to greater pressure to shrink Days Sales Outstanding (DSO). As promised, here are some business automation vendors that I have seen knock-down 1 or more days of DSO for their customers, slash their bank fees, and free-up staff to focus on servicing customers and collecting cash.
Business Automation Vendors
1) Solutions that help automate the capture of sales orders across multiple channels, with special emphasis on speeding up the cycle time related to those customers that email/fax in sales orders. (Naturally EDI has a place too.) The faster the order is received and processed correctly the faster the collection of cash can begin. [Ok… I admit, that’s a blatant plug for Esker…]
I am also talking about solutions that provide greater visibility into any exceptions or supply chain issues that prevent delivery of goods and ultimately timely billing and cash collection and providers who can quickly enable online order entry capabilities.
2) Providers such as Paymetric, who enable the electronic payment side of EBPP (Electronic Invoice Bill Presentment and Payment) whilst ensuring customers PCI data is secure). Some years back, one of my customers had moved their delivery of invoices and statements to Esker Cloud AR service and shaved off 1 day DSO as part of a gradual transition away from paper towards electronic delivery. They identified that if their customers could click and pay securely via credit card or eCheck that would mean 2 days DSO saved. Paymetric helped enable ePayments and also reduced the fees paid to the merchant bank—the more secure the data exchange the happier the bank.
3) Once the customer sends in their remittance notice that often means a manual cash application effort as one check can cover many different Accounts Receivable (AR) invoices. The remittance might come directly to your AR Team, with multiple deposits to bank lock boxes. Matching the money received to AR invoices sent out is manual and lengthens DSO.
Years back, I was speaking to a Chief Financial Officer (CFO) at a large pharmaceutical in Chicago. He asked “Can you scan and match our remittance checks?” Explaining that their bank was charging hundreds of thousands of dollars per annum for data entry (keying remittance details into Excel, often the data was often only 85% accurate).
Ultimately, the CFO was unable to apply the cash quickly. This meant that they had to borrow more money in order to maintain sufficient cash flow. They felt the cash application team was full-time employee (FTE) heavy, and the drawn out DSO meant they could not clearly see how different lines of Business were really doing.
Automation of the cash application process and slashing bank processing fees is where OpenScan out of Denver have a real strong niche in the Order to Cash story.
…Looming on the Horizon
If you talk to a few of the providers mentioned above, I am confident that three days DSO can be saved, as I have seen them provide those services for mutual customers. Increased borrowing costs are looming on the horizon, yet all is not lost. Efforts that you put in place now to shorten DSO will most likely pay for themselves in a short period of time, and the ability to borrow less or save more will become more valuable.
One of the lessons finance advisers share regarding the recent recession was the mantra “Cash is the New King.” You might not be able to turn Janet L Yellen’s ship around, but shortening DSO and cutting borrowing fees or increasing interest earned should be within your power.