High DSO Isn’t Random—It’s Predictable and Preventable
High DSO rarely shows up overnight. It builds quietly inside the business until it becomes a full-scale liquidity drain. A deal gets extended beyond terms. A dispute lingers in someone’s inbox. A report waits in a spreadsheet that never gets updated.
Individually, these moments feel routine. Together, they stretch DSO, trap working capital, and make cash flow less predictable.
For CFOs and finance leaders—especially in manufacturing and industrial sectors—the impact is immediate and measurable:
- Forecasts lose accuracy. Delayed collections distort liquidity planning and squeeze margins.
- Borrowing pressure increases. Every extra day of DSO is unplanned financing at today’s higher rates.
- Flexibility disappears. Cash that should fund reinvestment sits locked inside receivables.
The warning signs are subtle, but the causes are internal—and solvable. Visibility, accountability, and disciplined credit governance remain the most reliable levers for protecting liquidity.
Weak Credit Policies
When credit discipline weakens, sales urgency takes over and the same warning signs start to appear.
Common red flags:
• Terms extended or limits overridden without review.
• Overdue accounts still ordering freely.
• Credit reviews that are outdated or detached from risk data.
• No formal process in place for Sales Deal Review.
How to fix it: Put structure back into credit governance. Define clear approval tiers, escalation paths, and enforcement standards. Strong credit discipline restores predictability while keeping sales agility intact.
AR is seen as just a Finance Problem.
The breakdown is simple: accountability ends at departmental borders. Disputes drift unresolved, invoices age quietly, and forecasts lose credibility because performance metrics aren’t shared.
Watch for these signs:
• Sales and service teams aren’t measured on DSO or cash collection.
• Disputes pass between teams with no clear routing or escalation path.
• Finance is isolated from the commercial front line.
What works: Create DSO targets and collection metrics to shared KPIs across functions. When visibility and ownership are shared, accountability shifts from being a finance problem to an organizational habit.
The Visibility Gap Behind High DSO
When finance runs on spreadsheets and disconnected systems, the true state of receivables is often invisible until it’s too late. Data scattered across platforms forces teams to manage cash reactively.
Manual reconciliations, late reporting, and endless email follow-ups drain capacity and create rework. What looks like process control on paper often hides inefficiency.
How to get ahead: Centralize receivables data and automate reconciliation wherever possible into dashboards. Real-time dashboards, created simply in existing platforms like PowerBI or Tableau, expose bottlenecks before they turn into aging problems. The result is a shift from reactive reporting to proactive cash steering—forecasting and preventing DSO growth before it reaches the balance sheet.
The Data Doesn’t Lie: DSO Remains Stubbornly High Across Industries
Across industries, the pattern holds. J.P. Morgan’s 2024 Working Capital Index shows that more than 70% of companies report DSO above 46 days—roughly 50% higher than the manufacturing best-practice benchmark of 30. Each additional day ties up millions in working capital and adds financing cost in an already expensive credit environment.
For mid-market manufacturers, even small improvements can free up significant liquidity. One global industrial company recovered $6 million in overdue balances and reconciled $5 million in credits, unlocking $12 million in cash within a year.
The lesson is clear: cash doesn’t stay trapped because of poor systems—it stays trapped because of weak process control. Once visibility and accountability improve, liquidity follows.
Attacking the Causes—Not the Symptoms
Most companies approach DSO as a collections problem. It isn’t. It’s an execution problem. Chasing invoices or buying new software may help temporarily, but the real solution lies in how the business runs day to day.
The fixes that work are structural:
• Credit discipline anchored by rules, limits, and escalation protocols.
• Shared accountability build through cross-functional KPIs and dashboards.
• Process automation that eliminates delays and reconciliation backlogs.
• Targeted recovery plans to resolve aged balances and dispute faster
Together, these actions compress DSO, strengthen working capital, and make cash flow more predictable—often within a single quarter.
The message for CFOs is simple: cash stability doesn’t come from new systems; it comes from stronger execution. Your cash isn’t missing—it’s misaligned. Fix the internal causes, and you put it back in motion.
