Tips to reduce days sales outstanding.(SELECTED TOPIC)

Wouldn't it be great to discover an easy way to reduce DSO? Even better, what if there were techniques available under the direct control of the creditor that can achieve a lower DSO? Few will argue that most issues that lengthen the collection period are customer-related problems: cash flow shortfalls; use of "stretching" as a cash management technique; disorganization with the customer's payable department; or just a simple lack of urgency. Considering that a creditor has limited control over the problems of their customers, its all the more reason to reflect on things that we as creditors may do to slow down the payment time of our own receivables. In an effort to consider the DSO problem from the other side of the equation, I contacted a few A/P Supervisors and asked them to describe some ways that vendors contribute to delay of the payment process. Three common themes cropped up in each response: outdated pricing information; missing or incomplete proof of delivery documentation; and a failure to provide timely billing. Each issue will be examined individually, as well as their suggestions concerning how to facilitate the payment process.

Outdated Pricing Information

When a vendor increases prices for a product line, an often-repeated scenario is that the sales person calling on the account delivers a price list reflecting the higher pricing to the buyer. Too often, the communication stops there--A/P is left out of the process. When invoices with the higher pricing begin to show up and the higher prices are not reflected in their system, these invoices are set aside until the buyer approves the price discrepancy. Buyers often travel to trade shows, and may not be present to approve the pricing on the invoices for days--or weeks. Clearly, significant delays can result. Communicate with your sales force prior to a price increase going into effect. Encourage them to distribute price lists to the payables department when appropriate, or at the minimum, urge the purchasing manager to pass along the price list to their payables supervisor.

Missing Or Incomplete Proof Of Delivery Documentation

One of the best methods to ensure faster payments is to have a properly documented proof of delivery (POD). Properly documented refers to a POD that contains a list of products and quantity of cases delivered--not just a pallet count. If such information is provided on the POD, the delivery ticket can be quickly matched to the purchase order, thus greatly reducing the time the order is held up in the receiving department. The paperwork can be transferred to the payables department much faster, thus ensuring you have the potential to be paid sooner. A properly documented POD will also have notations of damaged or missing cases. When the number of cases damaged or missing can be easily ...