Days Sales Outstanding? Nowadays that should be Minutes …

Thereare good reasons for extending credit to your customers, but processing time isnot one of them. Net30 as a standard for all customers is an antiquatedcredit term based on antiquated invoice processing of yesterday. Now,there’s a real opportunity to introduce the notion of MSO (minutes salesoutstanding) rather than be anchored on DSO (days sales outstanding).

TheNet30 policy became a standard when an invoice had to be physically printed,put in an envelope, and sent through the postal network. At the customerside, that invoice would be routed through inter-office delivery and processedmanually by the customer’s accounts payable. The check would have beenphysically printed, put in an envelope, and sent back through the postalnetwork. With those constraints, Net30 had a place.

Itwas simple, but it was slow.

Theworld is different now.  A supplier’s ERP is able to send theinvoices directly to the customer’s ERP or AP systems via APIs eliminating theneed for re-entry at the customer. On the customer side, accounts payableprofessionals can execute payments electronically using credit cards orACH. The advent of APIs and electronic payments means that invoicingdelivery through to payment can be accomplished in minutes if not seconds ifnot milliseconds.

Sowhy are we still using Net30? Why are 50% of payments still done by papercheck? Why do suppliers login to AP portals to upload invoices rather thanuse automation and APIs? The answer: friction. While ACH is muchcheaper per transaction compared to checks and while the Internet provides allthe connectivity and protocols to automate workflow between a supplier’s AR anda customer’s AP, the effort to implement these improvements remains expensive.

Howis friction measured? Time to automation! Implementation times forautomation are the primary point of friction. ACH implementations withinERP average 9 months or more. Integration for a supplier into aprocurement network via API is typically quoted at 8 weeks per customer –imagine implementing 100 customers? The friction is high.

The world is different now. The advent ofAPIs and electronic payments means that invoicing delivery through to paymentcan be accomplished in minutes, if not seconds, if not milliseconds.

Theother challenge to leaving Net30 behind is incentive. Most customers don’thave an incentive to change how they pay, but suppliers can certainly do thatby changing credit terms whether it be timing, discounts, ormethods. Incentives are underutilized, and present an opportunity forarchaic business practices to evolve with the times.

Byeliminating friction and leveraging incentives, DSO can becomeMSO. Extending credit should be planned, predictable, andprofitable. MSO represents those attributes.


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