Optimizing Days Payable Outstanding With A Modern Order To Cash Software Solution
Days Payable Outstanding Meaning
Managing company accounts is major undertaking for any organization; specifically, days payable outstanding (DPO) is significant metric to focus on when evaluating the financial health of company. Most finance executives spend considerable amounts of time poring over DPO calculations, entailing arduous analysis and laborious computations.
Fortunately, technology makes optimizing DPO easier; particularly for those executives evaluating modern order to cash (OTC) Softwaresolution. OTC solutions can help executives get more out of their business accounts and optimize their days payable outstanding.
DPOTheoretically Explained
Days payable outstanding (DPO) is financial measurement of average payment period. It indicates the number of days company takes to make payments deducting the payment holidays. To calculate the average period its taken between the purchase and payment of selected good or service, executives take into account the trade credit period, accompanied by the outstanding credit of the organization.
In other words, DPO is cash flow analysis tool that informs the payment capabilities of an organization. It quantifies the terms for which customers are given trade credit and the amount of debt that the firm has accrued from suppliers. It is an essential measure of companies liquidity.
What Problems Do Executives Face in Calculating DPO?
Both manual and automated methods are used to measure DPO, but regardless of the process chosen, common problem that finance executives encounter relates to manual data entry. Manual data entry of supplier-customer information is both tedious and time-consuming, impairing the accuracy of DPO calculations. Additionally, as companies take on more data, it becomes less and less feasible to rely on manual spreadsheets.
Another issue that often rears its head is data quality. Generally, executives must work with incomplete or inaccurate data when dealing with manual spreadsheets. In circumstances such as these, faulty data can lead to false readings in terms of DPO.
What Makes OTC Solutions the Right Fit for Optimizing DPO?
An OTC solution offers an array of capabilities when it comes to managing accounts, making it the best fit for precise DPO optimization. OTC facilitates everything from purchase orders and payment notifications, to account collections and accounts receivables. It automates many of the manual accounting processes like those mentioned earlier.
At the same time, OTC streamlines the process and provides unified visibility into all the customer information, allowing for precise calculations of DPO and for customer data to be updated whenever necessary. This ensures that financial executives have up-to-date and reliable accounts at their fingertips.
Ultimately, OTC brings about centralized, structured approach to managing accounts that increases accuracy and decreases manual errors, which would otherwise affect the accuracy of DPO readings.
What Other Benefits Does OTC Provide?
Apart from precision, efficiency and accuracy, OTC solutions provide number of ancillary benefits. For starters, they enable finance executives to maintain customer relationships by tracking customer accounts and their debts. Similarly, introducing OTC software enables executives to view key monthly performances and compare their accounts, year-over-year, so analyzing and drawing insights from financial data is less of hassle.
Moreover, executives can use OTC solutions to improve their billing procedures and debt management, by segmenting their customers into different categories and offering special payment deals to predetermined customer groups. This gives executives better control of their accounts and helps them measure their companies financial health, inventory, and productivity.
Conclusion
Days payable outstanding is tool that finance executives rely on in order to measure the liquidity of their business. Manual methods, although widespread, have poor accuracy in terms of metrics. Introducing an order to cash solution allows executives to eliminate manual data entry, have access to accurate, up-to-date customer accounts, and makes analyzing the financial data easier. In addition, OTC automates many other manual processes and helps executives maintain customer relationships and better manage their debts. While not an exhaustive list, the advantages offered by OTC are substantial and make it the best fit for precise DPO optimization.
