Reduced DSO by Digitizing Collection & Automatic Reconciliation

Simple Yet Unthinkable: What Automation Can Do for Financial Metrics

Selling poses a dilemma in a business-to-business setting: businesses need to boost revenue via sales and grow market share to maximize profit, but collection risk and fraud jeopardize cash flow and profitability. The risk is high in industries with lower sales frequency and larger ticket sizes, such as construction and infrastructure, and can be diversified in sectors with higher sales frequency and lower ticket size, such as fast-moving consumer goods and raw food materials.

A flour production and distribution company faced this dilemma. They diversify bad-debt risk by setting a credit limit for each buyer — the owner personally visits each buyer after a few sales cycles and assigns a credit limit based on judgment. After that, the salesman can sell flour with payment terms of 7–14 days after goods are received and invoiced. To maximize revenue, they need to find as many buyers as possible.

Implementing payment terms has both a positive and negative impact: on one hand, cash flow leans more negative and additional operational cost is required for collection and more complex reconciliation. On the other hand, the payment term is a competitive advantage. Problems arise when many buyers forget to pay on the due date — buyers often don't feel urgency to pay if they don't need to place another order, which happens in both low and high seasons. In the low season the sales cycle slows; in the high season buyers often overestimate purchasing value. Both lead to less frequent orders and late payments.

The Cost of Implementing the Term of Payment

Payment reconciliation gets more complicated — the flour supplier must match payment against an invoice issued 14 days earlier. This gets real with 2,000 buyers across the region, some making partial payments. At a glance, the flour business now has to:

• Maintain and monitor the credit limit usage for each buyer.
• Approve any sales that go above the credit limit.
• Send an invoice after the goods have been received.
• Remind the buyer to pay before and on the due date.
• Collect payment and perform payment reconciliation.
• Adjust the buyer's credit limit after payment is received.

Beyond the operational layer, late payment from buyers has a significant financial impact. Cash flow runs negative, and the finance team doesn't know how to prioritize collection. Payment reconciliation slows and becomes scattered, delaying Day Sales Outstanding (DSO) analytics — not to mention losses from fraud via cash payments. At the end of the period, the finance team found DSO was three times longer than predicted, at around 40 days, and bad debt had grown to 3.5% of revenue.

Centralized, Streamlined Information Flow, Accessible Anywhere

The issue is drastically minimized using Paper, where invoicing can be digitized and centralized. Thousands of invoices can be created at once. Paper automatically measures the credit limit for each buyer and blocks invoice creation if the limit is exceeded — management and the owner can approve sales above the limit. Invoices are then sent in real time via email, WhatsApp, and SMS, and buyers automatically receive reminders before, on, and after the due date. Once payment is made, Paper automatically matches and reconciles the payment against the invoice, whether partial or full, refilling the buyer's credit limit. Real-time notifications, including payment confirmations and reminders, go to both buyer and supplier.

From the buyer's side, they're reminded, and all invoices are neatly listed to ease their operations. Multiple payment methods, including card payment, are available to extend their payment term further. Using digital payment instead of cash also gives them trust that their money arrives at the correct destination without fraud.

After two months of change management, the company fully adopted digital invoicing and payment, resulting in less than ten days of total DSO and below half a percent bad debt. This was achieved with a scalable finance team that could focus on strategic improvement, since operations and analytics were automated by Paper — and the sales team could focus more on market expansion and building stronger buyer relationships, resulting in more timely payment.