Winning new business is important—but converting sales into cash is where sustainable growth really happens. If you’ve ever faced late invoices or cash flow hiccups, you’re not alone. The good news? With the right approach, you can take control of your receivables and keep your cash moving.

That’s where Days Sales Outstanding (DSO) comes in. It’s one of the most powerful indicators of financial health, and with a few smart strategies, you can lower it and free up working capital. In this guide, we’ll explore actionable strategies to reduce DSO and strengthen your company’s financial position.

What is DSO (days sales outstanding)?

Days sales outstanding measures how long it takes, on average, for your company to collect payment after making a sale. It’s calculated using this formula:

DSO = (Accounts Receivable ÷ Total Credit Sales) × Number of Days

For example, if your company has $60,000 in accounts receivable and $300,000 in credit sales over a one-year period: DSO = ($60,000 ÷ $300,000) × 365  = 73 Days

This means it takes your company an average of 73 days to collect payment after making a sale.

DSO varies significantly by industry—software companies might see 30-45 days while construction companies often experience 60-90 days. However, regardless of your industry benchmark, there’s almost always room for improvement.

Why does DSO vary between industries? 

DSO varies significantly due to industry-specific factors such as the following –

Payment terms: Industries like construction have milestone-based payments, resulting in longer cycles.

Client relationships: Professional services often depend on client approvals, which can
delay payments.

Product lifecycle: Retail sectors require rapid turnover, thus incentivizing quicker
Payments.

Regulatory environment: Healthcare payments, for example, involve complex insurance processes, potentially slowing payments.

Why minimizing DSO should be a top priority

Cash flow Is king
Uncollected invoices keep your cash out of reach. Lower DSO means faster access to cash for operations, payroll, growth, and unexpected opportunities or challenges.

Lower risk & costs
Faster payments reduce bad debt, minimize costly collection efforts, and free staff for higher-value work.

Stronger customer relationships
Proactive payment processes minimize awkward collection calls and foster trust. By setting clear expectations and offering convenient payment options, businesses create a more positive and seamless experience for customers.

Better planning & competitive edge
Consistent, predictable cash flow gives you the confidence to budget accurately, plan strategically, and make faster decisions. 

How is DSO relevant to CFOs, controllers, and billing specialists?

DSO is especially relevant to financial leadership and operational roles:

CFOs use DSO to project cash flow and plan investments. When DSO is high, they lose strategic flexibility.

Controllers rely on DSO to assess AR team performance and flag financial risk.

AR Specialists need visibility into DSO so they can follow up efficiently, invoice cleanly, and escalate delays before they snowball.

Strategies to reduce your days sales outstanding

1. Strengthen your credit and customer management foundation

Implement Rigorous Credit Approval
Don’t let enthusiasm for new sales override prudent credit decisions. Establish clear credit approval processes that include:

• Credit applications for all new customers
• Credit checks and reference verification
• Setting appropriate credit limits based on financial strength
• Regular reviews of existing customer creditworthiness

Segment Your Customer Base
Not all customers are created equal. Develop different strategies for:

• High-volume, reliable customers (offer incentives, streamlined processes)
• New or unknown customers (shorter terms, deposits)
• High-risk customers (COD, prepayment, or enhanced monitoring)

2. Optimize your invoice process for speed and accuracy

Eliminate Invoice Delays
Send invoices immediately upon delivery or service completion. Every day you delay invoicing is a day added to your DSO.

Ensure Invoice Accuracy
Incorrect invoices create disputes, delays, and customer frustration. Your invoices should include:

• Clear, detailed descriptions of products or services
• Accurate quantities, prices, and calculations
• Purchase order references where applicable
• Clear payment terms and due dates
• Multiple payment method options

3. Revolutionize your payment terms and incentive structure

Offer strategic early payment discounts
A 2% discount for payment within 10 days (2/10 net 30) can significantly accelerate cash flow while still maintaining healthy margins. Calculate the annual cost of offering discounts versus the benefit of improved cash flow and determine which makes more sense financially.  

Negotiate shorter payment terms
Where market conditions allow, move from 30-day to 15-day terms, or even immediate payment for smaller transactions. This is particularly effective with new customers who haven’t yet established payment patterns.

Implement Progress Billing
For large projects or ongoing services, bill in stages or monthly rather than waiting until completion. This reduces both your risk and the customer’s payment shock.

4. Transform your collections and follow-up process

Establish Systematic Follow-up Procedures
Don’t wait until invoices are overdue to engage. Implement a structured communication schedule:

• Friendly reminder 5 days before due date
• Payment due notification on due date
• First follow-up 5 days after due date

🚀 Where Skyline Payments can make the difference: We offer automated reminder systems that eliminate the manual burden of follow-ups while ensuring no customer falls through the cracks. Customers receive professionally crafted reminders via email or text, with embedded payment links for immediate action. This approach can reduce late receivables by up to 40% while freeing your staff for higher-value activities.

5. Leverage technology and automation for maximum impact

Implement Automated Reminder Systems Manual follow-ups are time-consuming and inconsistent. Automated systems ensure every customer receives timely, professional reminders without consuming staff resources.

Provide Multiple Payment Channels The easier you make it for customers to pay, the faster they will. Offer:

• Online payment portals
• Mobile-friendly payment options
• ACH/bank transfers
• Credit card processing
• Text-to-pay functionality

🚀 Where Skyline Payments can make the difference: Our comprehensive payment solution addresses multiple pain points simultaneously:

• Self-service customer portal: Customers can view all invoices, make partial or full payments, and manage their payment methods without calling your office
• Multi-invoice payments: Allow customers to pay multiple invoices in a single transaction, reducing friction
• Unlimited saved payment methods: Customers can securely store multiple payment options for convenience
• Text-to-pay: Send payment links via SMS for immediate mobile payments
• Autopay options: Customers can set up automatic payments, virtually eliminating late payments

6. Streamline internal processes to eliminate delays

Optimize your order-to-cash process
Identify bottlenecks, approval delays, and manual handoffs that slow down the process from order receipt to cash collection. Common areas for improvement include:

• Order processing and fulfillment
• Invoice generation and approval
• Delivery confirmation and invoice dispatch
• Payment processing and application

Integrate your systems
Multiple disconnected systems create opportunities for errors, delays, and lost information. Integration between your ERP and payment processing systems enables seamless data flow and automated processes.

🚀 Where Skyline Payments can make the difference: We sync directly with popular ERP and accounting systems, eliminating double data entry and ensuring payments are automatically recorded and reconciled. This helps to reduce errors, save time, and provide real-time visibility into your cash position.

7. Optimize costs while improving collections

Strategic fee management
Processing fees can significantly impact your margins, but the right approach can actually improve your cash flow:

• Implement service fee pass-through to customers for credit card payments
• Utilize ACH processing for lower-cost transactions
• Take advantage of Level 3 processing for B2B transactions (up to 30% rate reduction)
• Negotiate better rates based on volume and payment mix

🚀 Where Skyline Payments can make the difference: our advanced payment platforms can automatically apply service fees to customer payments, recovering your processing costs while maintaining competitive pricing. Combined with optimized rate structures and ACH alternatives, our customers often save thousands annually on processing fees.

The bottom line: transform your cash flow today

Every day DSO goes unchecked is cash trapped in receivables. Process improvements and customer-friendly practices can help, but lasting change comes from streamlining and automation.

Modern AR tools simplify payment, reduce manual effort, and remove friction for both you and your customers. The result isn’t just faster collections—it’s stronger cash flow, lower costs, and more time to focus on growth.

Improving DSO isn’t about chasing payments—it’s about building a smarter, more streamlined operation. This is why thousands of businesses use Skyline Payments to help improve their cash flow.

Schedule a meeting today to learn more