Business associates reviewing notes together in a meeting.

Days Sales Outstanding Reduced From 38 Days to 31 Days, Realizing Nearly

December 5, 2018

Industry Department:

Sales

Process:

Receiving Department, Customer Payment Process

Objectives:

  • In order to reduce delinquent dollars in the customer payment process, we needed to reduce Days Sales Outstanding (DSO) from:
  • USA:
    • 34 days to 30 days
    • Entitlement of 25 days
  • Export:
    • 37 days to 33 days
    • Entitlement of 28 days

Timeline:

  • The charter of this project was written on July 13 and completed on December 12 of the same year.

Key Tools Used:

  • Black Belt tools that SBTI teaches were used
  • These included the use of:
    •  Process Mapping
    • Cause and Effects matrix
    • Multi-Vari Analysis
    • Failure Modes Effects Analysis and Process FMEA
    • Capability study

Deliverables:

  • A new process was to be determined, and personnel trained in it.
  • All Business Managers were briefed and trained on the payment processes and performance of their specific customers

Metrics or Results:

  • Approximate savings of $7,000,000 were realized.
  • The number of days sales outstanding were reduced by approximately a week (38 to 31 days for domestic sales).
  • Acceptable variation on these values was cute from 21 to 7 days for domestic sales.

Lessons learned:

  • Control new and smaller accounts from the beginning.
  • For problematic customers, investigate financial penalties for chronic delinquency.
  • Look for efficiencies (electronic, etc.) and cost savings that can be leveraged into new term negotiations.

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