It also indicates that the business has an efficient collections process and a proactive collections team.
What is a Low DSO?Ī low DSO suggests a business collects its debt within its payment time and has prompt-paying customers. As a result, this could lead to unstable financial health. A business with high DSO often fails to convert orders to cash, and in some cases, it writes off the payment as a bad debt. This could be because of two reasons - either the business lacks customers who pay on time or its collections procedure is inefficient. In simple words, a high DSO indicates that a business takes more days to collect its dues. Plus, you can significantly improve your cash flow by reducing DSO. Most businesses can improve DSO based on these two factors. In fact, with this, you can find out more about the effectiveness of your accounts receivable processes, particularly credit and collections. As a business, you can understand your cash conversion cycle better if you learn the significant differences between a high and a low DSO.
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