Reducing Days Sales Outstanding: What Actually Moves the Number

Calculating it properly

DSO is closing trade receivables divided by credit sales for the period, multiplied by the number of days in the period. Use credit sales, not total sales, or cash businesses look better than they are.

Track it alongside the ageing profile, because a stable DSO can hide a worsening tail. A business with most invoices paid in twenty days and a handful stuck at two hundred has a different problem from one where everything pays at forty-five.

Fix the invoice before you send it

Each of these removes a reason for the invoice to be queried, and a queried invoice restarts the clock.

• Correct legal entity name and GSTIN, matching the buyer's records exactly.
• The purchase order number, where the buyer uses one. Invoices without a PO reference sit in exception queues indefinitely.
• A clear payment due date, not merely terms. Net 30 means different things to different accounts payable teams.
• Bank details and UPI on the invoice itself.
• The acceptance or delivery reference that proves the supply happened.

A cadence, not a chase

A documented sequence works better than judgement calls: a courtesy reminder a week before due, a notification on the due date, a firm reminder at seven days overdue, a formal demand at twenty-one, a statutory or legal notice at forty-five.

The value is consistency. Customers learn what your process is, and the ones who pay late because nobody chases them stop being able to.

Use the statutory levers

If you are a registered micro or small enterprise, Section 16 interest at three times the RBI bank rate accrues automatically from the appointed day, without agreement or demand. Most suppliers never mention it.

Raising it in a reminder changes the conversation, because the buyer's own finance team knows that the interest is not deductible for them and that the principal is disallowed under Section 43B(h) until paid. That is a stronger argument than goodwill.

Know when to stop

Set a threshold at which an account moves from collections to legal, and apply it. Open-ended chasing consumes more in staff time than most small balances are worth, and a formal notice at the right moment recovers more than six further reminders.

For MSE suppliers the MSEFC route is free to initiate and carries a seventy-five per cent deposit requirement on appeal, which makes it a genuine threat rather than a bluff.

Frequently asked questions

### What is a good DSO?

It depends on your terms. Compare DSO against your stated credit period rather than against an industry number: a DSO of fifty on Net 45 terms is healthy, while the same fifty on Net 15 terms means almost everything is late.

### Can I charge interest on late payment?

If you are a registered micro or small enterprise, Section 16 of the MSMED Act gives you compound interest at three times the RBI bank rate automatically, with no contractual clause needed. Otherwise you need an interest clause in your contract.

### Does offering an early payment discount help?

Sometimes, but calculate the annualised cost. A two per cent discount for paying twenty days early is roughly thirty-six per cent a year — far more expensive than most working capital finance. It is worth it only if you genuinely cannot borrow.