Tips and Best Practices to Reduce DSO
Evidence-backed practices for reducing DSO and improving your entire AR process.
📈 Overview
Accounts receivable (AR) represent the money customers owe your business. Efficient AR management directly affects cash flow, liquidity and working capital.
Days Sales Outstanding (DSO) measures the average number of days it takes a company to collect payment after a sale.
European companies implementing automation can reduce DSO by up to 53% within 6 months (from 85 to 40 days).
❗ Why DSO Matters
Understanding the financial impact of DSO on your business.
DSO reflects how quickly cash enters the business, making it a critical indicator of financial health.
Track how much revenue actually converts into cash, crucial for sustainable growth.
European businesses average 62 days DSO; best-in-class achieve 40–50.
📊 Cash Flow Impact: Before vs. After Optimization
⚡ Automate & Digitalize Invoicing
- Data Entry Time: ~30 min/invoice
- Error Rate: 8–12%
- Delivery Time: 3–7 days
- Staff Required: High
- Data Entry Time: ~2 min/invoice
- Error Rate: < 1%
- Delivery Time: Instant
- Staff Required: Minimal
🕒 Time Allocation: Manual vs Automated
Extract from ERP, validate, send in consistent formats with pay links.
Trigger on delivery confirmation to eliminate delays.
Improve accuracy & speed via e-invoicing.
📝 Define & Communicate Clear Payment Terms
Due date + penalties/discounts on contracts & invoices.
Align with industry norms & notify customers.
Audit policies and enforce consistently.
Set incremental DSO goals using historic data.
🛡️ Strengthen Credit Policies
Define acceptance criteria; use third-party data.
Set terms by risk; update dynamically.
Adjust for late behavior; escalate when needed.
⚖️ European Late Payment Directive
Directive 2011/7/EU sets rules and maximum periods to combat late payment in commercial transactions.
- Interest on late payments (ECB + 8%)
- €40 minimum recovery fee
- Challenge grossly unfair terms
“Under EU Directive 2011/7/EU, the standard payment term is 30 days. Any extension must be mutually beneficial and not grossly unfair to the creditor.”
Moving from 60–90 to 30 days can improve working capital by 30–60 days of sales.
📬 Improve Collections & Follow-up
Reminder cadence, escalation, & clear owners.
Upcoming/overdue emails & portal nudges.
Clear evidence trail & cross-team coordination.
🤖 Use Automation & Technology
Reminders, invoice pulls, logging, cash application.
Spot slow payers, dispute patterns, and forecast cash.
ERP ↔ AR automation ↔ payment portals.
EFT, card, portal, mobile—reduce friction.
🤝 Collaborate Across Departments
Touchpoints that ensure deals convert to cash.
Exec sponsorship and KPIs across teams.
💳 Make Payments Easy
One-click pay links and simple invoice UX.
Outstanding invoices, history, & options.
Clear instructions reduce confusion.
📉 Cumulative Impact of Best Practices
Each bar shows average days you can reduce from DSO by implementing that practice.
📊 Days Saved by Each Practice
- 80% work reduction on repetitive AR tasks
- Best-in-class ~40-day DSO achievable
- Results vary by industry & implementation
Ready to Optimize Your DSO?
Implement these practices to reduce DSO, collect cash faster, and improve liquidity.