Days Sales Outstanding (DSO) is a metric that measures the average number of days it takes a company to collect payment after a sale has been made. The DSO can impact a company’s growth in several ways:
1. Cash flow: A high DSO indicates that a company is taking longer to collect payment from its customers, which can strain its cash flow and limit its ability to invest in growth and expansion.
2. Credit management: A high DSO can also impact a company’s creditworthiness, making it harder for it to obtain financing for growth initiatives.
3. Customer relationships: A high DSO can lead to strained relationships with customers, as they may feel that they are being pressured to pay debts they owe to the company.
4. Financial stability: A high DSO can also put a company’s financial stability at risk if it is unable to collect its debts in a timely manner.
In contrast, a low DSO indicates that a company is able to collect payment from its customers quickly, which can improve its cash flow, creditworthiness, customer relationships, and financial stability. This, in turn, can positively impact the company’s growth.
Therefore, it’s important for companies to monitor and manage their DSO to ensure that they are collecting payment from their customers in a timely manner and maintaining positive relationships while supporting their growth.