Customers are taking more time to pay invoices. How is global DSO impacting your business?

In today's evolving business landscape, the time it takes for customers to settle their invoices has become a pressing concern for companies worldwide. As businesses strive to maintain a healthy cash flow, it is crucial to understand and adapt to the global trends in Days Sales Outstanding (DSO). The average DSO, representing the average number of days it takes for customers to pay their invoices, has been steadily increasing over the years. This shift in customer payment behavior can have significant implications for your business.

Customer payment behavior is shifting towards longer payment cycles, resulting in increased global Days Sales Outstanding (DSO). This trend has significant implications for businesses, including cash flow challenges and operational disruptions. To manage global DSO effectively, companies must prioritize clear communication, streamlined processes, incentivization, technology adoption, and robust credit policies.

B2C and B2B sectors have to deal with diverging DSO destiny; retail is an outlier

Looking at the change in DSO, we again identify two clusters:

  • B2C industries show DSO changes being above the global average: Companies in the transportation, household goods, agrifood and telecom sectors have a higher capacity, compared with B2B, to impose new terms of payments when needed. So they are more likely to grant longer terms of payments for commercial reasons if they consider the cycle as not being too deteriorated. Indeed, in a macroeconomic perspective, as we are in a late phase of the cycle, and as they are exposed with a delay to economic fluctuations, B2C companies can be incited to continue proposing laxer terms of payment. The case of pharmaceuticals is a little specific. Drug makers often suffer from high level of DSO but this situation is linked to their customer base dealing mainly with public health insurance systems. Fortunately, laboratories are usually awash with large cash hoards and can afford an extended length in DSO level accordingly. 
  • B2B industries have DSO changes being below the global average: Construction, machinery, metals and energy, as well as electronics are more directly and in an earlier manner impacted by the fluctuation of the economic cycle. Those kinds of companies and sectors are more cyclical by nature. They have already observed a global deceleration of growth, meaning upcoming economic hardship; as a result, companies fearful of being paid too late shortened their DSO in 2018. Chemicals and automotive have got away with stable DSO levels in spite of accumulating hurdles for car makers dealing with tightening new pollution standards.

  • USA and Canada average DSO are better than the global average, but 50+ days is still a long time to wait for payment.

  • Some of the countries the USA exports to (Japan, India, and more) have average DSO 65+.
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