Know Your Cash Flow Cycle

While doing DSO analysis, it's important to consider the whole journey of chasing an order and converting to cash. While DSO is a great indicator of cash turnaround times by customers, it's important the whole journey timelines is tracked effectively. Operational systems, ERPs generally track individual elements in the Order to Cash Cycle but not the whole journey.
Every aspect of the journey right from Closing a Sales order to converting the Sales Order to Booked Order and then converting the Booked Order to cash is sometime a very long drawn process. Larger the companies, sometimes the Close to Book cycle itself can increase due to pricing negotiations, legal negotiations, obligation negotiations etc. It's crucial to assign expected time window to each stage in the process so that the whole journey of Ordering and then converting to cash is faster.

This generally varies industry by industry. SAAS companies have a slightly better overall Order to Cash cycle as most customers pay in advance before usage while Engineering/Construction companies have a long drawn cash conversion cycle.

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