You can’t manage what you don’t measure. To measure your cash flow, you need to track Days Sales Outstanding (DSO). DSO is the average age of your accounts receivable, and ideally, you’d like that number to be as low as possible. A higher DSO is an indicator that customers are slower to pay and could result in uncollectible accounts. What are some tools and tactics your company can deploy to help lower DSO, and what role might an AR automation application play?

Measure DSO Continuously, Not Occasionally

Every day you hold onto an account receivable, you have less cash at your disposal to grow your business. Delinquent receivables carry real cost in the form of delayed cash, extra collection effort, and higher risk of write-offs. Do you actively monitor DSO? It’s a critical KPI, but many organizations are not continually measuring it.

You can calculate DSO by dividing the average open accounts receivable balance by the total credit sales for a period, then multiplying the result by the number of days in the period. For example, let’s say over a 90-day period, your average receivable balance is $1.5 million, and your credit sales are $2.5 million. You can calculate your DSO for that period as follows:

• 1.5 divided by 2.5 = 0.6
• 0.6 multiplied by 90 = 54
• Your DSO for this business in this period is 54

While most accounting applications have reports that show an individual invoice or customer’s average days to pay, not all report on DSO in a clear, ongoing way. AR automation applications provide this type of information, often in dashboard form, along with other valuable metrics to help you manage cash more effectively.

Make It Easier for Customers to Pay

It still surprises us to see how many companies rely primarily on mailed invoices and checks. To lower DSO, make it quick and simple for customers to review and pay their invoices. Send invoices electronically and offer electronic payment options, including credit and debit cards online and ACH transfers.

Electronic presentment and payment options shorten the time between invoice delivery and settlement. Some accounting solutions, such as Sage Intacct, also support bank feeds that connect to U.S. banks, bring in transaction data, and support more frequent reconciliations. The result is a clearer picture of your cash position and less work at period end.

Tighten the Invoice Process Itself

You need to present an invoice to the customer to start the collections process, so it makes sense to ensure this process is quick and efficient. If you have a complex billing structure, including subscription billing with revenue recognition requirements, it may take longer to complete your monthly billing cycle.

A robust and flexible accounting application simplifies even complex subscription and recurring billing, helping you generate accurate and timely invoices. Faster, cleaner invoices reduce disputes and get the payment clock started sooner.

Automate Reminders and Collections Follow-Up

Manual collection efforts take time and money. Plus, the further an invoice strays from terms, the more effort is required to bring the account current. That is time your team members could spend on higher-value work.

AR automation applications can reduce the need for staff to micro-manage routine receivables by automatically sending customized reminders that help you stay ahead of collections. For example, the system can automatically send email reminders in advance of the due date, on the due date, and again a week later if the invoice has not yet been paid. Modern tools also support prioritization so collectors focus first on higher-risk or higher-value accounts.

Use Predictive Insight to Focus Effort

Artificial intelligence and machine learning are increasingly common in AR automation. These technologies add value by digesting large volumes of payment data and making useful predictions about what comes next. Stronger AR automation applications use AI and machine learning to:

• Predict payment timing to support short-term cash planning
• Surface payor trends to evaluate payment activity over time
• Perform risk profiling to identify higher-risk customers and focus collection effort where it is needed
• Support real-time or near-real-time cash visibility through dashboards

Research on AI-enabled AR shows that nearly all organizations using AI in receivables report faster payments and reduced DSO, with a large share achieving reductions of six days or more. Broader industry benchmarks also show meaningful gaps between average and high-performing teams, with digital world-class organizations often operating at substantially lower DSO than their peers.

Turn Receivables Into a Cash Advantage

With improved insight and control over your company’s collection cycle, you’ll save valuable time and gain quicker access to the operating cash you need. Not all AR automation applications provide the same level of functionality. We can help you evaluate and select the best approach for your organization, whether that means strengthening invoicing and payments inside your financial system, adding specialized collections and cash application tools, or both.

If you want to explore how AR automation can lower DSO and improve cash flow in your business, talk to our experts at BT Partners.