Good treasury management can reduce DSO.(HEADLINE)(days sales outstanding)

Credit professionals can help reduce days sales outstanding (DSO) not only by setting terms that are appropriate to the creditworthiness of customers, but also by good treasury management practices. Advice and information about the topic was provided during an NACM audio teleconference. Madeline Sprague, CTP, of JPMorgan Chase, presented the teleconference entitled, "Treasury Management for the Credit Professional."

Sprague explained various forms of payment, such as checks, drafts, wire transfers, ACH (automated clearing house), EFT (electronic funds transfers) and payment to vendor websites. She noted that time is money and the longer the money takes to actually get into a company's bank accounts, the more it costs in terms of interest on borrowed funds or lost interest in invested company funds. She pointed out every day DSO is reduced translated directly to the bottom line profitability of a company. Therefore, Sprague said the goal of treasury management is to optimize profitability by improving the payment cycle, increasing efficiency and managing processing costs.

Some of the factors involved in the amount of time it takes a check payment to translate into useable cash is the mail float, the processing float getting it through company channels and the check float from the depository bank to its final availability. By shaving a day off here and there on these float times, a company can reduce DSO. In order to reduce mail float, lockboxes can be located strategically closer to customers. Sprague explained the various ways to set up a lockbox system to reduce the amount of time it takes to process a check. She advised checking into the various bank fees to determine exactly what level of service would be most cost efficient. A company can also turn a desk into a teller window through the use of a bank-approved scanner that allows the scanning of check information and transmits it ...