How to reduce your DSO: 9 measures that work immediately

Start by measuring: calculate your DSO

DSO = (outstanding receivables / revenue for the period) × number of days in the period. Measure it monthly and per customer segment, not just as a yearly average — an average hides exactly the customers who are causing the problem.

The nine measures

Ranked by impact relative to effort required.

• 1. Send a reminder three days before the due date. It costs nothing and prevents most 'I forgot' invoices.
• 2. Follow up from day one after the due date, automatically and without exceptions.
• 3. Add a payment link to every invoice and every reminder.
• 4. Communicate in the debtor's own language — it removes the easiest excuse for delay.
• 5. Check invoice details before sending: a wrong invoice number or VAT number is the single biggest cause of delay.
• 6. Offer a payment plan instead of repeating reminders to customers who want to pay but can't all at once.
• 7. Set a hard escalation date: a formal final notice after fourteen days, recovery after twenty-one.
• 8. Track time-to-first-response from the debtor; that figure predicts your DSO better than most metrics.
• 9. Set credit limits per customer so no single debtor can hold your entire cash position hostage.

What not to do

Early-payment discounts look attractive but you're effectively buying cash with margin — often two percent for ten days, which is extremely expensive annualised. Fix your process first; only then talk about discounts.

Frequently asked questions

Keep reading

• Cash flow management
• Payment reminders
• Accounts receivable management