Client: Office Products supplier (US Listed)
Project: To reduce Days Sales Outstanding (DSO) from around 78 days to 42 days
Service: Cash Flow Improvement
Kaizen Enterprises was engaged by a national office products supplier to reduce Days Sales Outstanding (DSO) from around 78 days to an optimal target DSO of 42 days.
Our strategy to reduce the client’s DSO centred on reengineering the entire receivables process. This included fostering closer contact between the accounts and customer service departments (which had previously been absent), rewriting the Credit Application, engaging and training a new Credit Manager, and removing the impediments that were causing payment delays.
The greatest impact was achieved through direct involvement of the customer service department, which had first contact with customers and was able to identify issues that caused customer dissatisfaction and impeded subsequent payment. By working closely with this department, and acting quickly on issues raised, the problem-to-solution cycle was drastically reduced, from weeks and months to a few days.
A major impediment was high volume small-value orders. A customer order might contain as many as 200 line items, and issues regarding the delivery of any one line item could delay payment of the invoice for the entire order. This was detrimental to our client, as the invoice could be valued at up to $50,000, even though the individual line item could be worth just a few dollars.
During the project, we also identified and addressed a number of other systemic factors contributing to payment delays in a manner that allowed them to be permanently resolved.
Although dealing with payment impediments was important, the overall reduction in our client’s DSO was largely a structural change brought about by direct contact with every customer. More than half of our client’s customers had not signed a credit contract, which meant that the most basic step of providing credit terms had not been taken. Re-educating those customers, in the absence of a signed agreement, involved delicate dialogue, and our sensitive approach to negotiations ensured that our client did not lose any customers as a result of our work.
At the end of the project, our client’s DSO was reduced from around 78 days to 41.6 days – a total reduction of 36 days – within the agreed time period and budget, and without the loss of a single customer. While we did not implement a campaign to sign up the uncontracted customers, we provided our client with appropriate strategies and recommendations, which, if acted upon, would produce a further DSO reduction of around 8 days.
Our final project report centred on: