By Jose Martinez - Consultant at ConVista Spain
Collect faster and better or in other
words, reduce your DSO. What is the meaning of the initials DSO?
DSO ratio (Days Sales Outstanding) is a
measure of the average number of days that a company takes to collect revenue
after a sale has been made. A low DSO number means that it takes a company
fewer days to collect its accounts receivable. A high DSO number shows that a company
is selling its product to customers on credit and it takes longer to collect
money.
What is
the importance of this ratio?
To get a quick idea of its importance, let
me take a very simple example: Suppose that the annual turnover of a company is
€ 3.6 million and its daily sales figure is 10,000 € (€ 3.6 million / 360
days). Suppose
further that the current DSO is 50 days, so that the amount that the company
invests in receivables would be 500,000 € (50 days x € 10,000 / day), which is
exclusively dedicated to their customers financing.
In order to perform this financing, the
company needs to collect resources to undertake other activities, for at least
its fixed value, but, with a cost of 10%. In short, carrying their customer
financing represents 50,000 € (€ 500,000 x 10%).
If the DSO is reduced in 40 days, financing
costs would be reduced by 10,000 €. Taking into account these figures, DSO
ratio becomes relevant.
How the
Receivables Management SAP solution can help the companies to reduce their DSO?
Dispute
management responds to the current necessity for companies to clarify the
reasons when an invoice is not paid. Nonpayment, or partial payment are not
always caused by client's refusal, it
can be due to different causes, depending on the business sector.
What
kind of circumstances could generate delays? Incorrect billing or contact
addresses, inadequate logistics (a product has not been delivered on time) or
incomplete service, among others.
In the
current situation of lack of liquidity, companies cannot afford a non-collected
invoice due to a simple problem in the supply chain or billing, so we have to
clarify in a very short time, the reasons of an unpaid invoice.
SAP
Dispute Management supports the processing of receivables related on disputes
or clarification cases.
Sometimes
happens that customers do not notify their suppliers about payment reductions
or nonpayment, that´s why many vendors must deal with huge numbers of payment
deductions or delays. In other cases the companies pay on time but the
collected amount does not agree with the billed amount.
SAP
Dispute Management application enables us to solve more effectively customer
disputes over receivables. This tool can
help us to improve the tracking and processing of short payments, streamline
our accounts receivable processes and enhance our customer relationships.
We can
manage each dispute according to specific reason codes, such as price
discrepancies, quantity or damaged goods, and route them to the appropriate
employees via workflow.
All
information related to each case is contained in a centralized file called
dispute case. This file enables all employees involved in the clarification
case view critical information such as the reason code, disputed amount,
partial payments, communications history and current status.
In a
single view, you can see the reason code, processor, disputed amount and amount
paid. You can also see all actions that have been taken to resolve the dispute,
as well as all customer correspondence.
The
main benefits of this solution are: avoiding companies to waste significant
resources, collection costs reduction, facilitating cooperation across departments
and DSO decreasing.
SAP
Collections Management helps you proactively to manage and collect overdue
receivables. The software uses a collections work list with an overview of each
past-due account, including open invoices, dispute cases and contact history,
ensuring that collections agents have all the information they need when
contacting a customer.
In
addition, agents can easily document the results of each customer contact and
create promises to pay.
Efficient
receivables management has become critical for many companies in a difficult
economic environment, where classic dunning notices may no longer be effective
with customers.
Analysts
estimate that efficient receivables management can help companies reduce DSO by
20% to 10%.
Agents
and analysts can identify accounts that require more attention based on
receivable value, name of customer or DSO.
SAP
Collections Management lets you check customer accounts directly through a
collections work list. The work list provides an overview of all the
information you might need when contacting a customer. The customer collection
view shows all open invoices, including their current status, as well as all
open promises to pay and dispute cases.
You can
also display a history of each invoice, along with any related promises to pay
or dispute cases.
In
addition, the application lets collections agents document the results of
customer contacts. An agent can, for example, create a promise to pay and track
it later.
Promises
to pay that customers do not fulfill automatically receive a status of “broken”
or, if the payment received does not correspond to the amount indicated it
receives the status of “partially kept.” Agents can also create dispute cases
or provide information about the status of existing cases.
ConVista
Spain has implemented the Receivables Management SAP Solution on Utility and
Insurance companies during the last year helping them to improve their DSO
ratios.
Experience
acquired in the previous projects has helped us considerably to improve our
knowledge in the functioning of these modules, giving us also the ability to
develop Receivables Management RDS projects.
