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DSO is affected by a large number of factors:
Questions and Answers
By Steven Kozack and Michael Dennis

Question: Our DSO goes up and down like a yo-yo despite our best efforts to collect everything that goes past due. Why can't we control DSO?

Answer: DSO is affected by a large number of factors. Among them are:

  • Sales volume

  • Monthly sales volume changes

  • The timing of sales [example: sales late in the month tend to increase DSO]

  • The timing of collections

  • The terms of sale offered to customers

  • Whether or not cash discounts are offered for early payment, and the size of any cash discounts being offered

  • How rigidly your cash discount policy is enforced

  • The level of competition in your industry - including terms of sale being offered by your direct competitors

  • The strength of your company's negotiating position when it comes to discussions about past due invoices

  • The skill of your collections department

  • The number of errors [such as pricing or shipping errors] made by your company that cause delays in payment and result in deductions taken by customers

  • Senior management's 'appetite' for credit risk and the company's willingness to take chances with marginal accounts

  • Your company's philosophy regarding using order holds / credit hold as leverage to force customers to retire past due balances

  • Your company's willingness to accept payment plans as an alternative to placing accounts for collection

Since many of these factors are beyond your control, to some extent so is the credit department's ability to hold DSO at a specific level.

Disclaimer: The information provided in this Bulletin is not legal advice and is not a substitute for legal advise. Readers are encouraged to contact an attorney to discuss any questions that may arise after reading this Bulletin with their attorney to clarify any of the issues raised.

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