I am currently working on an application to use analytics to identify opportunities to improve working capital. One of the diagnostic analytics is to breakdown DSO into components. Starting with Weighted Average Terms offered to a customer (or Days Given) and Weighted Average Days Greater than the Terms (or extra DaysTaken by a customer). Such that DSO = Days Given + Days Taken. This enables a simple assessment of the impact of terms (Days Given) vs. process and ability to pay (Days Taken) and the impact these two components have on the total DSO and the Cash Conversion Cycle. Any suggestions on the best terminology or other suggestions would be appreciated. Thank you
Analyzing Days Given vs Days Taken as components of DSO
Answers
Hi Bob,
I think the proposed terminology makes sense. I think the spread on Days Given and Days Taken is in itself a great measure to track and one to drill in on for the collections folks. Nothing is more annoying that the automated payment chase emails and there has to be a way for companies to refine the process so that they really are chasing up risky clients (aside from the work your way down the aging report method). Of course the scheduled emails is an important way to maintain cash but when your customer hears from your A/R team 3 times a month and from your service team once a quarter it does not reflect well on you.
Also, I think this spread is a good way for a company to dialogue with the customers who are within your acceptable tolerance. "We have you listed with our standard N30 but you pay on average N45; how about we formalize you at N45 but set up an auto payment for you?"
I posted a question about cash conversion cycle. Appreciate any thoughts you might have. https://www.proformative.com/questions/cash-conversion-cycle
Here's an interesting
"Measuring the Impact of Better Cash Flow
https://www.proformative.com/whitepapers/measuring-impact-better-cash-flow-management-strategic-advantage
Best... Sarah
A reminder....
....that any cash flow management strategy STARTS and are HIGHLY DEPENDENT on
...again....just a reminder.