Ask any finance executive about one of the things they obsess over, and it is invariably Days Sales Outstanding (DSO). The magic number of how many days it takes for a company to convert its accounts receivables into cash varies over time, of course, but in general, the sooner a company gets to cash in hand, the stronger their cash flow and resulting financial positioning becomes.

Properly managing DSO as an integral part of a strategic working capital effort requires that many components spread across segments of the OTC process be constantly evaluated and optimized. Many organizations start by benchmarking DSO internally and also rely upon external, peer/vertical industry comparisons. The Hackett Group, in their 2018 US Working Capital Survey, has noted that DSO has been deteriorating since 2015, in part due to past focus on payment terms extensions and DPO optimization. Past low-interest rates, as well as relaxed credit terms, have also allowed companies to focus less on optimizing DSO. However, as interest rates climb, and certainly in the current environment of global trade uncertainties, companies will and should place more focus on optimizing DSO. This becomes even more critical as several key points of improvement also directly impact customer satisfaction.

How RPA and Optimized OTC Can Improve DSO

RPA back-office operationsCorporate finance executives may have in the recent past been focusing on unattended RPA as an automation solution to support a myriad collection of activities on the backend of the finance ecosystem. In fact, some industries have seen unattended RPA infiltrate over 50 percent of back-office operations. However, a systematic evaluation of finance-related processes that require human interaction has shown that attended RPA will begin to dominate the minds of most finance executives. The Clear value that this full vision of process automation can provide is critical for achieving the full benefits of RPA. For example, optimizing order entry activities within the overall OTC process can improve order fulfillment and accounts receivable functions, and have a significant impact on DSO. Here are just a few examples.

Improved Collections Metrics

Most finance teams spend considerable effort on managing credit terms by assigning credit limits, payment terms, and discounts, as well as tax rates relative to customer locations and delivery addresses. All of these factors must be rigorously maintained across billing and collection systems. As a result, the actual OTC process, and order entry, in particular, can easily be overlooked. Order entry related errors can account for payment disputes that invariably impact your collections team, through higher labor costs.  Reducing internal process errors can obviously reduce dispute rates, and past due to AR. 

Improved Invoicing Processes

In the Deloitte working capital series: Strategies for optimizing your accounts receivables, improving the invoicing process is one of the five key activities that can markedly strengthen your working capital position. An OTC process that automatically generates accurate invoices from optimized activities spanning order processing, fulfillment, and accounts receivable functions can reduce, if not eliminate, invoicing errors and delays. Otherwise, open and closed invoice errors impact everything from inventory counts to overcharges and credits, resulting in extended DSO.

Providing Customer Payment Terms Options

Payment terms directly affect DSO metrics, and the seller is in a much better position to negotiate payment term changes if the Order to Cash process is optimized; efficient order entry, processing, delivery, and invoicing all create the proper (and expected) environment for payment and credit negotiations. Offering incentives for early payment discounts as a new option in your financial management arsenal make good business sense.