Finance
Days Sales Outstanding: The Hidden Cash Flow Killer
After a decade of building companies and raising millions in venture capital, I've learned that business success often comes down to mastering the fundamentals. While most founders obsess over revenue growth and customer acquisition costs, there's one metric that separates thriving businesses from those that fail—and it's hiding in plain sight.
If you're not tracking this number religiously, you're leaving money on the table. Worse, you might be putting your entire business at risk. DSO measures how long it takes your company to collect payment after making a sale. The calculation is straightforward: (Accounts Receivable × Days in Period) ÷ Total Credit Sales.
But here's what makes this metric so dangerous: revenue without cash flow is just an accounting entry.
I've watched promising startups with impressive revenue numbers fail because they couldn't collect what they were owed. Their balance sheets looked healthy while their bank accounts emptied. It's a trap that catches more businesses than you'd think.
The hidden costs of poor DSO management include:
The sweet spot for most healthy businesses? 30-45 days.
But context is everything. When we built DrChrono in healthcare, we discovered that industry norms vary dramatically:
The goal isn't hitting an arbitrary benchmark—it's understanding your industry baseline and consistently beating it.
Here's where things get exciting. At JustPaid, we're witnessing how artificial intelligence is fundamentally transforming accounts receivable operations.
Traditional AR management is reactive and manual. You send invoices, wait, send reminders, wait some more, then scramble when payments don't arrive.
AI-powered systems flip this entirely. They're predictive and automated:
Identify which customers will pay late before they do, based on historical patterns and behavior data.
Personalized communication that adapts to each customer's payment patterns and preferences.
Predict your collections 30, 60, and 90 days out with remarkable accuracy.
Route billing questions to the right teams instantly, preventing small issues from becoming payment delays.
The businesses embracing these technologies aren't seeing minor improvements—they're achieving 20-40% DSO reductions while cutting manual work in half.
Here's what gets me excited about DSO optimization: improvements compound exponentially.
Reduce your DSO from 45 to 30 days, and you've just freed up 33% more working capital. That's money you can reinvest in growth, use to negotiate better supplier terms, or keep as a cash cushion.
Real numbers: For a company with $1M in monthly credit sales, a 15-day DSO improvement equals $500K in freed-up cash. That's not just nice to have—that's business-transforming capital.
The future of accounts receivable isn't about hiring more collections agents or sending more reminder emails. It's about leveraging data and AI to predict, prevent, and optimize every aspect of the payment process.
As we continue building JustPaid, we're seeing firsthand how businesses that embrace this technological shift don't just improve their DSO—they transform their entire relationship with cash flow management.
Your DSO isn't just a metric. It's a competitive advantage waiting to be unlocked.
Learn how AI-powered solutions can cut your DSO by 20-40% while reducing manual work. Experience the difference intelligent collections can make for your business.
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After a decade of building companies and raising millions in venture capital, I've learned that business success often comes down to mastering the fundamentals. DSO measures how long it takes your company to collect payment after making a sale—and it's hiding in plain sight.
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Combinator (W23)
