Introducing A Powerful Solution For Accelerating The Order-To-Cash Cycle
Dso Calculation Methods
When it comes to the order-to-cash cycle, modern finance executives face quandary. Often times companies of all sizes lack unified solution, easily resulting in lost revenue, missed opportunities, and low margins. To remain profitable, it is essential for organizations to learn how to master the Cycle.
One such solution is DSO Calculation Method (DCM), powerful tool to automate the order-to-cash process. In the following article, we will discuss what exactly DCM is and how it can benefit executive alone. We will also offer step-by-step guide to establishing and executing DCM in virtually no time.
Understanding DCM
DCM, short for Days Sales Outstanding, is method of calculating your companies receivables. It tallies financial ratios and produces predictions that can help you measure the efficiency of your order-to-cash cycle. In turn, using this data, management can make more informed decisions about working capital and cash flow.
Whereas most companies only track simple metrics like average payment times, DCM gives an executive team an in-depth, more holistic view of the order-to-cash process. With it, companies can holistically analyze and assess KPI?s such as sales per customer, individual customer payment behavior, and the accuracy of your sales forecast.
Benefits of DCM
The most obvious benefit of adopting DCM is the ability to predict, manage, and optimize cash flow. Through DCM, you gain an understanding of the revenue accounts receivable. This allows you to improve cash flow related to receivables, and helps you diagnose any slow payment issues.
DCM also helps you identify areas where payments can be accelerated, thus freeing up liquidity and improving general financial health. By bringing greater visibility and control to the order-to-cash process, DCM reduces the manual labor required to remain profitable, freeing up team members to focus on other aspects of business growth.
Step-by-Step Guide to Implementing DCM
Step 1: Establish Digital Payment Strategy
Before you can get the most out of DCM, you need to establish reliable digital payment infrastructure. payment strategy should include connection to your banking statements and the possible integration with customers? accounting systems.
The plan should be organized in top-down fashion and involve setting parameters for payment preferences and the rate at which payment terms should be adjusted. To maximize the capabilities of DCM, the strategy should also include working capital optimization initiatives.
Step 2: Set Up Automated Receivable Notification
Once you have established digital payment strategy, it is essential to set up an automated notification system. This should trigger emails to customers after an invoice is processed and include link to digital payment system. These notifications should be personalized based on customer preferences and should be automated.
An automated receivable notification tool makes it easier to reconcile payments and get greater insight into each customers payment behavior.
Step 3: Utilize Data Visualization
DCM data is only as effective as one?s ability to identify patterns. This requires data visualization. Through lucid graphs and well-designed user interface, you should be able to track patterns in customer payment behavior.
The well-thought-out design of the data visualization tool should not only enable executives to identify trends in customer behavior, but also to easily extract actionable insights and make more informed decisions about working capital and cash flow.
Step 4: Leverage Predictive Analytics
To achieve greater operational efficiency, it is essential that management can forecast future sales accurately. To this end, the entire data set should be able to be used for predictive analytical purposes.
By leveraging DCM?s predictive analytics capability, executives can quickly identify areas where cash flow optimization is possible by intervening in the order-to-cash process. This also helps them comprehend the success of sales efforts and make wiser decisions about resources and sales target projections.
Conclusion
The order-to-cash cycle is critical to the success of any organization. It determines the general health of the companies finances and reveals key information on customer behavior. DCM provides executives with an in-depth view into this process, providing reliable and direct way to optimize working capital.
By following the four steps outlined above, finance managers can swiftly implement the solution and see an immediate return on investment. With DCM, executives can automate the order-to-cash cycle, ensure accurate sales projections and uncover hidden opportunities for increasing cash flow.
