Optimizing The Daily Sales Outstanding Formula With Order To Cash Software
DAILY SALES OUTSTANDING FORMULA
We all understand the importance of effective cash flow management. And yet, when it comes to evaluating solutions designed to bolster financial performance, there remains common misconception that decision-makers should be solely focused on operational or operational cost implications. The truth is that investing in an order to cash solution can yield powerful economic benefits if compartmentalized correctly.
One such area is optimizing the daily sales outstanding formula. With the right solution, it is possible to adopt system-driven approach to incorporating the daily sales outstanding formula into one’s cash flow management strategy. To understand why this is so relevant, let?s first discuss the significance of the formula itself.
What is the Daily Sales Outstanding Formula?
Otherwise known as DSO, the daily sales outstanding formula calculates the average number of days it takes for business to collect payment from customer or client after the sale of goods or services has been completed. It is very helpful metric to assess how efficiently business is operating in receivables sense and to anticipate the various cash flows entering the business over the upcoming fiscal period.
Ideally, the faster the DSO, the better it is for cash flow liquidity. For example, business with DSO of 30 days has more immediate cash flow than one that takes 70 even if the amount of the sale was the same. DSO is critical equation for accounting professionals and executives, as it helps inform forecasting for accounts receivable collections and subsequently bolsters an organizations overall financial health.
The Challenges of Calculating DSO Without an Order-to-Cash Platform
Unfortunately, manually gathering the data necessary to calculate DSO accurately is time-consuming and inefficient. This process entails going into the customer database, registering the engagement date and noting the payment date when it transpires. For some businesses, this can become tedious effort consuming resources each month. The fact is, most manual attempts to calculate DSO can only take into consideration through one invoice in the data system, if not all. This means that existing methods of assessing the data necessary to calculate DSO is not capturing the entire fiscal lifecycle, making it difficult to accurately measure cash flow liquidity.
Utilizing an Order-to-Cash Platform to Calculate DSO
This is where investing in an order to cash platform (O2C) can be beneficial for longer-term financial performance. This type of solution automates the end-to-end process of procuring revenue from customers, simplifying the way accounts, invoices and payments are reconciled. This type of data-rich platform also streamlines the critical process of calculating DSO.
The O2C platform captures the complete lifecycle of customer transaction in single line of data, allowing executives to compare the day the sale was registered to the day the payment for it was collected. The variances between these two points allows organizations to measure DSO accurately, in rapid and efficient manner, as the platform is designed to automatically collect the necessary data points and combine them into one metric.
Conclusion
The post-sale collection period is key to an organizations financial performance, and being able to both measure and manage that process is critical. Systematic solutions like an Order to Cash Platform allows decision-makers to optimize their internal daily sales outstanding formula calculation, resulting in more accurate assessment of cash flow efficiency and liquidity.
