How Proven Processes Reduce DSO, Increase Cash Flow, And Lower Bad Debt For CFOs

Maggie Madden, Director of Credit, Collections, AP & AR, Trulite Glass & Aluminum Solutions

Maggie Madden, Director of Credit, Collections, AP & AR, Trulite Glass & Aluminum Solutions

Maggie Madden has over 25 years of experience and focuses on helping companies improve cash flow, reduce DSO, cut bad debt, and increase sales.

Chief Financial Officers’ primary concern is increasing cash flow, reducing days sales outstanding (DSO), and minimizing bad debt to optimize the business’s financial health. Leaving uncollected cash to age is risky as it affects borrowing base lending, increases operating costs, and heightens the risk of insolvency. While these challenges may seem daunting, a proven system—rooted in well-established processes—can significantly mitigate these issues. Several key changes can help you get paid faster, reduce bad debt, and minimize operational stress.

For nearly 30 years, I have been helping businesses overhaul and turn around AP (accounts payable) and AR (accounts receivable) departments. With each new project, I find the same systemic issues. Employees show up each day wanting to do a good job but fail because they lack the processes and tools needed to succeed. A 2020 Deloitte study found that companies with defined credit risk assessment, collections, and dispute resolution processes experienced better financial outcomes, including lower write-offs and higher profitability.

The first step should always be evaluating a customer’s creditworthiness. Understanding who you are extending credit to and how their business payments are trending allows you to make informed decisions about credit extensions and limits.

“A well-executed strategy reduces DSO and bad debt, improves cash flow, and enhances customer service in a way that drives sales growth”

Implementing an automated, systematic tool that provides up-to-date information on accounts and their trends is highly effective. Such a tool offers ongoing, automatic monitoring of sales patterns, payment behaviors, and creditworthiness, enabling the credit team to be proactive. Early detection of accounts in trouble is a crucial strategy that improves DSO and cash flow.

Direct verbal communication with customers is critical and often underestimated. Many companies rely too heavily on email for collections, with team members simply firing off an email—or worse, automating the entire process. A phone call fosters a more personal connection with the customer and provides a better understanding of the business’s financial pulse.

A 2018 Experian study found that businesses that followed up on overdue accounts with phone calls received payments faster than those relying solely on emails or letters. Similarly, a 2019 TransUnion report revealed that calls made by real people rather than automated systems resulted in a higher payment likelihood. These human touchpoints create a sense of urgency and establish a rapport that encourages customers to share insights about their business—good or bad—helping you stay informed.

Automated emails, payment reminders, and invoices are integral in keeping your company top-of-mind for customers in a friendly, non-intrusive way. Providing easy “Click Here” access for invoice copies, statements, proof of delivery, or payments is an effective tool for accelerating collections.

While automated emails directly impact cash flow, no single process will be as effective as a strategic and intentional approach. When AI automation detects a change in payment patterns or a missed payment, the key is having a systematic prompt for a credit manager to make a personal call.

Additionally, automated holds and monitoring processes for late payments and tracking credit limits help maintain control when customers are overdue or overextended.

One of my recent turnaround projects involved implementing a structured process that defined the number of daily calls, the timing of customer outreach, and the frequency of follow-ups. This strategy unlocked a $20 million increase in cash flow within 90 days. In another turnaround, we balanced automation with a well-timed weekly email campaign alongside strategic calls, increasing cash collections by 32% within the first 30 days. In a separate project, outbound calls, automated emails, strategic holds, and collaboration with the sales team reduced DSO by 10 days, lowered past-due receivables by $1 million, and increased sales by 12%.

A 2018 Journal of Applied Business Research study confirms that companies with well-established accounts receivable processes have significantly lower DSO than those without such systems. A 2021 report by CFO Research and Siemens found that businesses with structured systems experienced up to a 20% reduction in DSO.

Numerous factors influence receivables performance, but well-defined procedures—when strategically implemented and tracked—significantly reduce the time it takes to convert sales into cash.

This is not just about lowering DSO. A 2017 Harvard Business Review study found that companies with a methodical and disciplined approach to accounts receivable management are better equipped to forecast cash flow and reduce financial uncertainty.

Many companies leave collections to chance and fail to implement a structured, trackable process for success. The optimal receivables management process does more than meet expectations—it exceeds them. A well-executed strategy reduces DSO and bad debt, improves cash flow, and enhances customer service in a way that drives sales growth. With the right processes and tools, these results are easily achievable.