Benchmark your DSO financial performance: How to level up with AR automation software

Blog | May 10, 2024

3 minutes, 48 seconds
Upwards graph labeled cash flow and downwards graph labeled DSO

There’s something about benchmarks that speaks to human nature: We all want to be number one.

So, when Dun & Bradstreet releases its quarterly “Accounts Receivable and Days Sales Outstanding Industry Report,” finance leaders take notice.i Accounts receivable (AR) teams ask themselves how their organization compares, where they are excelling and where they can improve. Even when they are ahead of the industry average, they ask how they can continue process improvements to be at the top of the heap.

This competitive spirit sets off a push for accounts receivable teams to level up, no matter where they are on the DSO (days sales outstanding) scale. That energy, in turn, enables businesses to grow, excel, and, ultimately, elicit stronger results.

In fact, Dun & Bradstreet reported that in Q3 2023, only 8% of evaluated businesses had more than 10% of their invoices flagged as severely delinquent (91+ DSO), an improvement over Q3 2022.

The bad news? Of the 225 organizations reviewed, nearly 80 had more than one-quarter of their invoices running past 30 days.iii In addition, industries like manufacturing packaging machinery only had a 4.3% current payment rate.

So, while much improvement has occurred, much remains necessary to help businesses enhance their accounts receivable performance.

Discover expert insights and strategies for AR automation in our webinar, “Mastering AR automation: Best practices and actionable strategies.”

Optimize your accounts receivable processes, navigate industry trends, and drive success in AR management.

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Bryan DeGraw of The Hackett Group and Russ Gould of Billtrust

How can accounts receivable automation partners help streamline your DSO?

That’s where strategic partners step in. In today’s landscape, finance leaders must look to partners that can offer a comprehensive assessment of their accounts receivable function and help them address pain points. Without knowing your data inside and out, you can’t improve it. A strategic AR automation software partner will help you access and make sense of your data and analytics.

For instance, in the wholesale building products and millwork segment—which has only 76.7% of invoices current and 8.1% of them past 30 days—small changes can lead to big developments.v Take the example of one of America’s largest suppliers of specialty building products and millwork for light commercial, residential construction, and With delays in approving customer credit applications, getting customers to pay in a timely manner, and highly manual collections and customer dispute processes, the company knew it needed to be more efficient.

By collaborating with a partner—such as Billtrust—to institute automated email functionality and creating a daily plan for contacting delinquent customers, the company’s accounts receivable team witnessed substantial changes. In just six months, it managed a 31% decrease in overall delinquency and a $1 million decrease in its 61+-day aging bucket. It also reported a 56% increase in revenue and a 50% decrease in disputed items.

Or consider the story of a distributor of original equipment and automotive replacement parts invoices, the company’s DSO was out of control. However, once its processes became more digital and automated, it was able to slash DSO (days sales outstanding) totals, bringing its average to only 27 days, creating a much better cash flow for the organization. Its DSO rate also aligned more closely with those of its peers, as wholesale current pay rates, with 91.1% of customers on time.

The impact of strategic accounts receivable on cash flow

These examples tell the tales of what strategic accounts receivable and strong partnerships can do. And as we advance in 2024, cash flow and payment timeliness stand to be of even greater importance to organizations. Businesses will continue to assess ways to operate the accounts receivable function with more efficiency to ensure a faster payment process.

No matter where a company falls on the DSO spectrum, introducing new forms of automation and providing tools that support and incentivize desired customer behaviors will achieve better results and strengthen the accounts receivable function. From implementing digital invoicing and encouraging electronic payments to offering customer-facing, full-service digital systems, every business can benefit from enhanced accounts receivable solutions.

Today, efficiency alone is not enough; productivity involves using technology to restructure work and improve performance. Embracing it is crucial for finance departments to thrive.

By partnering with a solutions provider who sees DSO as part of the larger accounts receivable picture, businesses will not only identify strategies to get paid faster and streamline their operations; they will also increase customer satisfaction.

That approach to accounts receivable will ensure businesses set the standard for the industry, and perhaps most importantly, increase their bottom lines. And that’s a path to victory any way you look at it.

Read the “The Productivity Imperative: Why apex performance matters most in 2024” white paper to learn the importance of measuring the productivity of accounts receivable (AR) teams.
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Preview of Productivity Imperative White Paper Cover with runner