8 levers: How transport and logistics companies can improve their DSO and minimize non-payment risks

Payment practices have deteriorated significantly across all sectors as a result of the Corona pandemic. Companies in the transport and logistics sector have to wait a particularly long time for their money. According to industry publications, the days sales outstanding (DSO) – the period between invoicing and receipt of payment – recently rose to an average of 200 days in Germany. 

In this difficult situation, smooth receivables management is of particular importance. The rule of thumb applies: The later the response, the greater the risk of default. DSO can be improved immediately with a few basic, often simple measures:

1. process optimization:

Average payment terms have increased dramatically in the Corona pandemic. This makes fast invoicing and short payment terms all the more important. To achieve this, efficient and lean processes must be installed. In small and medium-sized (often owner-operated) businesses, there is potential for optimization here. Often, the administration of receivables management is organized in a confusing manner. For example, when outstandings are managed via Excel spreadsheets and invoices are written at different locations. To gain more speed, bad processes must be mercilessly uncovered. Manual work is required here. Staff shortages without an efficient receivables management software solution can quickly become a bottleneck.

2. automation:

Once the process flow has been analyzed and optimized, automation mechanisms help receivables management to gain speed. Send reminders at a frequency defined in the process. Even with payment reminders, the PDFs of open invoices should always be sent as attachments. Of course, tact is required here: If necessary, individual discussions with a good customer of many years’ standing is the right way to go.

3. digitalization:

Numerous tools are now available for streamlining receivables management: Upcoming tasks, work steps and deadlines are mapped centrally and clearly. This centralization prevents the necessary information from having to be researched in several programs or systems. For example, e-mail traffic is automatically imported by a receivables management software solution and all communication is bundled.

4. connectivity:

Fast and reliable exchange of information with all connected partners also helps reduce DSO. In addition to customer relationships, connections to the back office – and thus usually to the company’s ERP system – credit insurers and credit agencies must also be taken into account.

5. communication:

Especially in the current Corona crisis, dealing with defaulting customers is sensitive and personal exchange is important. Your business partner may have got into the crisis through no fault of his or her own due to the unusual situation. Talk bilaterally about possible approaches and payment arrangements. Of course, communication also includes knowing which channels your customers use. While older customers may prefer the classic letter, younger customers expect fast communication via e-mail or SMS. But also send PDF copies of invoices by e-mail to customers who receive their invoices by post. If a customer receives the electronic copy earlier, it may speed up the payment process. Requesting an acknowledgement of receipt documents the receipt of the email.

6. controlling:

A complete and daily updated monitoring of payment movements with pending tasks is essential. An Excel spreadsheet is usually not sufficient for this. Current software solutions for receivables management have clear dashboards in which the most important KPIs are mapped in scorecards. Insurance and limit reports or aging lists can be pulled with a few button clicks. Significant changes at the customer are signaled as quickly as possible by early warning systems. Secure decisions through integrated limit applications and flexible approval processes are thus guaranteed at all times.

7. external partners:

Risks can be eliminated or at least minimized in advance of a contractual relationship. While credit insurers assume the default risk, credit agencies examine the creditworthiness of potential customers. Criteria such as risks in certain countries can also be taken into account here at the credit decision stage. In many cases, the data pools of external partners can be linked to a receivables management software solution via an interface. The time-consuming manual entry of addresses in the various service provider portals is no longer necessary, and data that has been extracted can be processed immediately.

8. individualization:

The size of a company often determines the structure of receivables management processes. SMEs usually prefer a plug-and-play solution that is easy and quick to install and can be individually adapted to the respective company by means of adjusting screws; large corporations, on the other hand, often require a customized solution that can be docked onto already predefined processes. With its software solutions S4Dunning and Open Credit 4.0, Collenda offers the right option for both scenarios.

Do you need help choosing the right software solution for your company? Feel free to contact us.

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