Monday, December 31, 2001

Battling higher DSOs

Q. I have read a lot about higher DSOs in some recent manufacturer press releases. How will this number affect my ability to receive favorable payment terms?

A. This year has been a slow year for all aspects of business. Equipment vendors have been reporting higher DSOs in recent press articles. Days Sales Outstanding (DSO) is an important financial indicator showing both the age, in terms of days, of a company's accounts receivable and the average time it takes to turn the receivables into cash. This higher DSO indicates that the vendor's customers are holding onto their money longer and are paying invoices slower. As a result, equipment vendors will become more selective as to which customers will receive special payment terms.

To make sure your company is one of the chosen: Pay your bills when they are due, the best way to get your business special recognition by a manufacturer in these lean times is to be fiscally responsible. If you have been offered payment terms, and the terms are to your advantage, then by all means utilize them. But when it is time to pay the vendor, do all you can to pay by the due date. Stretching out your payments can hurt both your company, with poor credit ratings ­ making your future purchases more complicated, it also can hurt the vendor. The bigger the DSO number gets, the less likely the equipment vendors will be to offer favorable payment terms in the future, this ultimately will impact your companies cash flow.

Mike Eccles is national accounts manager at Trinity Capital Corp in San Francisco. Reach him at 800-841-4433, x212