Every credit manager knows what DSO stands for, Days Sales Outstanding. We monitor it every month, explain it during management meetings, and celebrate whenever it moves in the right direction. It’s one of the most widely followed measurements in credit management because it provides a quick snapshot of how efficiently a company converts credit sales into cash.
But after working with hundreds of companies over the years, I’ve become convinced that DSO should also stand for something else:
Deal Strategically with Outstandings
After all, reducing DSO isn’t really the goal. The real objective is to develop credit and collection practices that consistently influence customer payment behavior. The number itself is simply the result.
So, if we think of DSO as a strategy instead of just a measurement, where should we begin?
1. Know What’s Really Inside Your Accounts Receivable
An aging report tells you how old your receivables are, but it doesn’t always tell you where your biggest risks are hiding.
Segment your receivables into meaningful categories. Which customers consistently pay on time? Which routinely stretch your terms? Which accounts have quietly migrated from “slow paying” to “potential problem”?
Then look at dollar exposure. A $75,000 account that’s beginning to slow down deserves far more attention than ten $2,500 accounts that are already 60 days past due. Strategic credit management means focusing your efforts where they can have the greatest financial impact.
2. Win the Collection Before the First Invoice Is Sent
Many collection problems begin long before the first invoice becomes due.
A new customer relationship is the perfect opportunity to establish clear payment expectations, confirm credit terms, explain collection procedures, and resolve any questions before misunderstandings occur. Customers who clearly understand your expectations from the beginning are far more likely to become reliable long-term payers.
The easiest collection is often the one you never have to make.
3. Never Let Collections Become an Improvisation
When an account becomes delinquent, every member of your organization should know exactly what happens next.
Who contacts the customer first? When should the account be escalated? At what point should management become involved? When is outside assistance appropriate?
Without a documented credit and collection policy, decisions become inconsistent, follow-up becomes delayed, and customers quickly learn that payment deadlines are flexible. A well-designed collection process removes uncertainty for both your staff and your customers.
4. Watch Customer Behavior, Not Just Aging Reports
Financial statements and commercial credit reports remain valuable tools, but they often tell you what happened yesterday.
Customer behavior frequently tells you what’s about to happen tomorrow.
Are payment promises becoming less specific? Has the accounts payable contact suddenly changed? Are disputes increasing? Is the customer requesting duplicate invoices more frequently or asking for extended payment terms?
These subtle behavioral changes often appear months before serious financial problems become obvious. Credit managers who recognize these early warning signs can often reduce exposure before a problem becomes a loss.
5. Know When It’s Time to Let Go
As Kenny Rogers wisely sang, “You’ve got to know when to hold ’em and know when to fold ’em.”
Every credit professional wants to resolve an account internally. But when a customer repeatedly breaks payment promises, refuses to communicate, or simply lacks the ability to pay, continuing to spend valuable time chasing the account may no longer be the best business decision.
Knowing when to involve a commercial collection agency or collection attorney allows your staff to refocus on protecting the rest of the portfolio while experienced professionals pursue the delinquent account.
At the end of the day, anyone can calculate Days Sales Outstanding.
The best credit managers do something much more valuable.
They Deal Strategically with Outstandings.
Because great credit management isn’t measured by the DSO you report. It’s measured by the customer behavior you create.
Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
Nancy Seiverd, President
CMI Credit Mediators, Inc.
All Rights Reserved
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