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Can Suppliers Really Reduce DSO by a Significant Margin?

By Nick Babinsky, Senior Product Manager – Billtrust*

We have seen 84% of companies achieve a DSO reduction ranging from 1 to 13 days and an average reduction of about 9.3 days when they begin looking at ways to automating their receivables. There is concrete evidence that reduction in DSO is possible by taking some steps to refine the receivables process.

Invoice Delivery

The issue is more than simply ‘how can we get the invoice in the hands of our customers faster.’ It’s much more complex than that. One of the most popular topics in reducing the time it takes to deliver an invoice is shrinking the country.

Shrinking the country

The United States Postal Service (USPS) is facing economic challenges with an all time high in office closures. As a result, it’s really slowing down delivery of traditional mail. As businesses, we want to look for other ways to expedite delivery of invoices if they must be sent via mail. Suppliers may always have some customers who refuse to go paperless. Suppliers can look for ways to shrink the country. If your company is based in California and you have customers in Florida, you don’t want to send invoices in the mail from the West Coast. You may want to explore ways to print and deliver those invoices closer to the East Coast. Shrinking the country by delivering in closer proximity to your customers is a way to realistically reduce DSO

Batching Bills/Invoices

Customers may be likely to pay their suppliers at the end of the month. Finding ways to batch those bills into a single correspondence is a good way to make sure they get them all at once. Using a multi-envelop strategy, where suppliers can insert more invoices into a 6” x 9” envelope without using multiple No. 10 envelopes, and simply being postal smart can help suppliers take advantage of postal optimization strategies that the USPS offers. It’s almost worthy of a separate discussion, but there are a number of ways suppliers can optimize postal usage.

Electronic delivery and multiple presentment options

We’ve seen an emergence of e-billing over the last 5-10 years and it continues to increase each year. The key point here is to offer multiple presentment options. We’ve observed that all of our customers may not come to our portal to pay us. It’s not necessarily practical. A customer may be ordering from at least 20 different suppliers. If each supplier is offering their own portal, each buyer has to create 20 different profiles – storing ACH details, credit card info, etc.

We have seen companies be more successful at paperless billing with multiple presentment options. Suppliers can offer website portals, but some customers will inevitably want to order supplies or services while also paying their bill. Suppliers can also offer billing options on other types of portals. Additional portals can include e-Invoicing networks, sites with financial institutions, or third party consolidated platforms where small, mid-size and large buyers can consolidate their payables into one place and pay all of their suppliers from that single tool.

Invoice Payment

ACH and Credit Card acceptance

ACH and credit card acceptance can be large motivators for buyers to move to electronic while also helping suppliers get paid faster. A lot of buyer organizations may feel as if they are stuck with sending paper checks because it’s the only thing their supplier accepts, but we have seen a significant increase in ACH and Credit Card payments.

Credit card payments can be a sensitive topic because the cost to accept them is so high. We’re seeing banks issue more cards than ever, providing cards to commercial bank account holders in the form of P-Cards, commercial cards or virtual cards. Ultimately, this may hurt on the receivables side because companies are trying to find ways to contain their credit card costs. What we’ve seen is suppliers very successfully offer a credit card acceptance policy that includes expedited payment terms in the first 15 days, paying a lower interchange rate and cost acceptance by taking advantage of level 2 and level 3 discounts, and taking advantage of big ticket interchange programs that Visa and Master Card offer. Some of these other programs can help the cost of acceptance go below 2%. Although credit card usage is taking off, there are ways suppliers are responding to keep costs low while expediting payment.

*Excerpt from the April 5, 2016 webinar Tangibly Lower DSO – How Financial Executives Can Overcome Their Mt. Everest. A recording of the full webinar can be viewed here.

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