Cash Flow

Six Steps to Reduce DSO

Cash flow is the lifeblood of any business and a key measure to track for a healthy cash flow is Days Sales Outstanding (DSO). DSO represents the number of days it takes for a company to convert its accounts receivables into cash. The sooner the company gets that cash, the stronger its cash flow and financial position is likely to be.

However, years of low interest rates and easy credit have allowed companies to take their eye off the ball when it comes to managing DSO. If the company can easily borrow money at low interest rates, there is less need to worry about DSO increasing by a few (or more) extra days.

Not surprisingly, many companies have significant opportunities to improve DSO. The 2016 Hackett Group Working Capital Survey (registration required) of 1,000 public companies shows how variable DSO can be from company to company. The survey found a considerable gaps between companies with median performance on DSO (43.5 days) and those in the top 25% of DSO performers (25.1 days). Overall, the survey found that data from the 1,000 public companies included in the sample have $316 billion tied up in DSO.

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