Despite a massive wave of digitization among businesses of all kinds over the past 20 months, days sales outstanding (DSO) has increased since 2019, threatening cash flows and operations.
PYMNTS studied the problem in Accelerating the Time to Realized Revenue, a Mastercard collaboration, which surveyed 400 U.S. and Canadian executives in the manufacturing, healthcare and transportation/logistics/shipping sectors during Q3.
See the study: Accelerating the Time to Realized Revenue
The survey revealed that nearly 40% of “large and mid-sized firms across the U.S. and Canada say their days sales outstanding (DSO) — a metric measuring the average number of days it takes a company to collect payment for a sale — are longer now than they were in 2019. They now face an average DSO of 45 days.”
Those that have automated their accounts receivable (AR) function are seeing marked improvements, however, cutting a path for others to reduce DSO substantially.
Get the study: Accelerating the Time to Realized Revenue
Reversing the ‘Great Slowdown’
Calling pandemic-era collection lags “the great slowdown,” DSO has been edging up since COVID’s onset in March 2020, which in turn can gum up the payments gears of organizations.
Per the study, “U.S. businesses have borne the brunt of this slowdown. Forty-three percent of mid-sized U.S. firms experience longer DSO times now than they did in 2019, and the share is as high as 48% among large U.S. firms. Just 24% and 16% of mid-market and large Canadian firms, respectively, have experienced DSO extensions in that time.”
Shortening the path to time to realized revenue (TTRR) is the objective — and companies are achieving it by automating AR functions, particularly around data reconciliation.
“Data management costs are the most common barrier hindering firms’ technological innovation, followed by regulatory issues,” the study states, adding that “the next-most common barriers stem from a lack of in-house knowledge.”
Researchers found that 41% of firms “say they do not understand the benefits and limitations of new technology well enough, and 28% struggle to hire and maintain the right staff to make informed decisions about adopting new technologies.”
Also see: Accelerating the Time to Realized Revenue
AI, RTP, Virtual Cards Closing the AR Gap
What stands out in the new findings is the transformative effect that digital AR is having.
“More automation in a firm’s payment operations tends to signify shorter DSO measurements,” the study states. “Firms that use either mostly or entirely automated payment processes wait an average of 36 days to receive payment for sales — 10 days less than firms with payment processes that are either mostly or fully manual.”
Additionally, “the more that firms digitize and automate their processes, the less costly it is to implement more innovations in the future. Firms with mostly or fully automated systems are less likely to cite data management costs as a hindrance to technology adoption.”
Virtual cards, real-time payments and artificial intelligence (AI) are also seen as alleviating DSO pain for the organizations adopting them, with the study noting that “the most common benefit that U.S. firms cite from using real-time payments is their 24/7 year-round availability, as 28% of all respondent firms cite availability as the most important benefit.”
As for AI, “third-party vendors are even more integral to mid-market firms’ five-year innovation plans, especially when it comes to AI systems. Forty-one percent of all mid-market firms are planning to outsource AI systems from third parties in the next five years.”
More details: Accelerating the Time to Realized Revenue
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