How to reduce DSO: a collections playbook

First, measure it

DSO (days sales outstanding) is roughly accounts receivable divided by credit sales, multiplied by the days in the period.

Track it monthly, on a chart. The trend matters more than the level, and a creeping DSO is the earliest reliable signal that collections discipline is slipping.

Segment customers by behavior, not size

Every receivables book has three populations: customers who always pay on time, customers who pay when reminded, and customers who pay when escalated. Treating them identically wastes goodwill on the first group and wastes time on the third. Score payment reliability per customer using on-time rate, average days to pay, and missed promises, then let the score drive the cadence below.

Invoice mechanics that quietly move the number

• Invoice the day the work is committed, not at month-end batch time. Every day of invoicing delay is a day of DSO you volunteered for.
• Itemize. Disputes are the biggest hidden DSO driver, and vague single-line invoices invite them.
• Put terms on the invoice and keep them consistent. Net 30 that sometimes means Net 45 trains customers to test you.
• Make paying easy: an online payment link on the invoice collects days faster than “please mail a check.”

A humane dunning cadence

A sequence that firms up in stages protects the relationship while protecting the cash:

• A few days before due date: a friendly note. Automate this one.
• On the due date: a polite reminder. Automate this one.
• Day 7: a firmer note with the invoice reattached. Automate this one.
• Day 14: a phone call that asks for a specific payment date, a promise to pay, and logs it. Keep this one human.
• Day 30: an escalation to a decision-maker on both sides. Keep this one human.

Record every promise. A broken promise to pay is the strongest signal in the whole system.

When early-payment discounts make sense

A 2% discount for paying in 10 days is expensive money if everyone takes it: roughly a 36% annualized cost. It earns its keep only with chronically slow, high-balance customers where the alternative is 60+ day waits or write-offs. Model it per customer, not as blanket policy.

Run it weekly

A 20-minute weekly review of receivables is the whole management system: the top ten overdue balances, the promises due this week, the disputes still open, and the DSO trend. Teams that run it stop being surprised by cash.

This guide is general information, not tax, legal, or accounting advice. Rules change and situations differ, so confirm specifics with your CPA or advisor.