DO NOT IGNORE DSO, ESPECIALLY IF YOURE CASHRICH

If your organization is going through a cash-rich period, do not let it lure you into a false sense of
security. A bundle of cash is a strategic lever for boards and CEOs on the hunt for acquisition
targets that represent good value. Full pockets can also lure CFOs and Controllers into a false
sense of security, resulting in cash-flow drivers, such as days sales outstanding (DSO), being
under-scrutinized.
The specter of global economic uncertainty returned in 2016 and along with it, the impact of a
retained practice from the post-2008 world, extended days payables outstanding (DPO). An
APQC study from 2015 shows large businesses with clout maintain extended DPO periods, and if
economic uncertainty is returning, these periods of payment holds have potential to grow
longer. As a result, the DSO of like-sized suppliers is likely to increase as it did previously under
such circumstances.

NUMBERED DAYS
What does this mean for organizations and what steps can they take to address trends like this?
In the short-term, most organizations probably cannot influence the ways in which key-account
sales staff are striking deals and setting payment terms in a cut-throat marketplace. However,
taking steps to influence the efficiency and effectiveness of billing processes might cut a day or
two off an organizations DSO stats.
Large performance gaps exist between top and bottom performers when looking at the time it
takes to get error-free invoices out to customers. Using APQCs Open Standards Benchmarking
data, Figure 1 shows the relative performance for organizations cycle time in days to generate
complete and correct billing data from all participants in North and South America. To give a
sense of reference, these participants were compared to the industrial products industry in the
same region.

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Cycle Time in Days to Generate Complete and Correct Billing Data

6.00
5.00
5.00
4.00
3.00

3.00

3.00
2.00
2.00
1.00

1.00

1.00
0.00
Top Performers
Median
Bottom Performers
All Participants
Industrial Products
N=562
N=51

Figure 1
This chart clearly indicates that top performers have a significant advantage on the worst
performersand a leg up on those in the middle of the pack. APQC also argues with assurance
that many of the top performers have taken steps to rid their billing processes of the root
causes of invoice errors.
Taking this a step further, APQC compared the median of all participants, three days, to the
median of all industries from our data in North and South America (Figure 2). Of those
industries, five did worse than the three day median: Services, Utility, Insurance, Financial
Services/Banking, and Military/Government.

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Cycle Time in Days to Generate Complete and Correct Billing Data Across All Industries
All Industries (N=562)

3.00

Government/Military (N=26)

5.00

Financial Services/Banking (N=41)

4.00

Insurance (N=29)

4.00

Utility (N=28)

4.00

Services (N=80)

3.50

Electronics (N=27)

3.00

Petroleum/Chemicals (N=37)

3.00

Telecommunications (N=33)

2.50

Consumer Products/Packaged Goods (N=49)

2.00

Distribution/Transportation (N=17)

2.00

Industrial Products (N=51)

2.00

Automotive (N=21)

1.25

Pharmaceutical (N=29)

1.00

Retail and Wholesale (N=54)

1.00
0.00

1.00

2.00

3.00

4.00

5.00

6.00

Figure 2
Now consider this: dodgy invoice data is a leading cause of payment halts. So, what does this
mean in terms of a hard-dollar cash flow boost? Organizations need to undertake enterpriselevel analysis and figure out how an improvement in billing cycle time might lead to a onedayor even half-dayDSO improvement. This in turn can be used to figure out what that
might deliver in terms of an estimated annual cash flow improvement.

ABOUT APQC
APQC helps organizations work smarter, faster, and with greater confidence. It is the worlds
foremost authority in benchmarking, best practices, process and performance improvement,
and knowledge management. APQCs unique structure as a member-based nonprofit makes it a
differentiator in the marketplace. APQC partners with more than 500 member organizations
worldwide in all industries. With more than 40 years of experience, APQC remains the worlds
leader in transforming organizations. Visit us at www.apqc.org, and learn how you can make
best practices your practices.

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