Posted on January 23, 2014

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Remember that days sales outstanding thing, it’s the amount of time it takes for customers to pay you and it’s super important for a very important reason, it’s really like taking the temperature of your business. Do you have a fever? And we’re not talking for more cow bell, we’re talking about for cash. The life blood of any business is its cash flow. The ability for it deploy funds in the service of paying vendors and growing the business. But how do you know if your business is going to have enough cash to make it?

Enter days sales outstanding, when you create an invoice for a client you are unwittingly entering into the DSO flow. Simply put it’s measuring how long it takes a client to pay you and knowing this number at a macro level is the best way to judge if you are getting paid on time. Most businesses estimate how much they can spend based on how much they bill, but that’s half the story if you’re not getting that money back in the door after you invoice it’s as good as not billed in the first place. Lets talk through how you can lower your days sales outstanding:

Get the terms in writing up front

This might sound a little off putting, but setting expectations is a critical way to establish a foundation so that later on if their is any confusion or I thought you said’s going around you can point back to the terms as evidence that this was all talked about up front. It also gives your firm a professional image and tells your customers your serious. It can be a big win for days sales outstanding and your image with your customer.

Be a great communicator, about invoices

Had you right up until invoices didn’t I? The reality is the best way to get paid is to create a great stream of communication right from the moment the invoice is created. Let your customer know the invoice is ready, make sure they got it, and ask them if they have any questions. One of the big days sales outstanding gotchas is customers saying later on they had a question or concern about the invoice which results in it not being paid on time and costing you some serious cash. Then touch base right before the invoice is coming due, this will put a sense of urgency around it for most clients and prompt payment right then or on time. If they do go past due, stay on them, the sooner you start that conversation the more likely you are to get paid, the longer you wait the less likely the payment will ultimately come through.

Bill on time

Sounds simple enough, but sometimes in the heat of the job we forget to send our invoice on time and that puts us behind before we ever get started. It also gives the customer the ability to go into what should be a past due status without ever being past due, bad for our business and bad for our days sales outstanding. So make sure you set aside regular time to handle your billing, even if the job isn’t complete, if the terms of the job say billing will happen regardless every week or two weeks make it a priority to get it done.