Cash flow
How to reduce DSO
DSO is the number of days it takes you to get paid. Cutting it is the cheapest working capital you will ever raise — no bank, no interest, no collateral.
A business doing ₹5 crore a year has roughly ₹1.37 lakh of sales tied up per day of DSO.
Cut DSO from 68 days to 53 and you free ₹20.5 lakh — permanently. At 14% borrowing cost that's ₹2.87 lakh saved every year, for work you can do with the data already sitting in Tally.
Calculating it
From Tally: take total outstanding receivables, divide by last twelve months' sales, multiply by 365.
₹18,40,000 outstanding on ₹5,00,00,000 of sales = 68 days.
The more useful number nobody calculates
Work out how long your customers actually take to pay — the average gap between invoice date and payment date across settled bills. Call it your behavioural DSO.
If customers pay in 53 days on average but your DSO is 68, that 15-day gap isn't your customers' behaviour. It's your own collection process — invoices raised late, nobody following up, disputes sitting unresolved. That gap is the recoverable part, and it's usually where the whole opportunity lives.
1 · Stop chasing everyone the same way
This is the biggest single win, and it costs nothing.
Four customers all "60 days overdue" can be four completely different situations:
| Situation | What to do |
|---|---|
| Always pays at 74 days, currently at 62 | Nothing. They're on schedule. Chasing spends goodwill for no gain. |
| Normally pays in 39 days, currently at 61 | One gentle nudge. They almost certainly forgot. |
| Only ever pays after three chases | Start firm, early. Don't waste the polite round. |
| Has paid newer invoices but not this one | Call. It's a dispute — reminders will never work. |
Sending all four the same message is what most businesses do, and it's why chasing feels ineffective. Judge each customer against their own normal, not against your stated terms.
2 · Find the disputes hiding in your ageing
Look for invoices where the customer has since paid newer bills. They aren't short of cash — something is wrong with that specific invoice: short delivery, a quality complaint, a rate mismatch, a missing e-way bill, a GSTR-2B mismatch blocking their input credit.
These are usually your oldest and largest outstandings, they never move, and no reminder will ever shift them. One phone call often resolves what six months of messages could not.
3 · Invoice the same day
Unglamorous and genuinely effective. Every day between delivery and invoice is a day added to DSO for free. Many SMBs bill weekly out of habit — that's 3–4 days of DSO given away for nothing.
The same goes for paperwork. An invoice missing the PO number, e-way bill or correct GST details doesn't get queried — it just quietly sits at the bottom of their pile.
4 · Send the reminder on the day they actually pay
Most Indian businesses release payments in a rhythm: the first week of the month, or after the 20th once GST is filed. If a customer has paid on the 8th–12th for nine months running, a reminder on the 25th achieves nothing. The same message on the 6th lands while they're preparing the payment run.
5 · Spend the owner's calls where they count
An owner-to-owner phone call works almost every time. But you only have time for two or three a week, so they're your scarcest collection resource.
Spend them on disputes and on customers whose payment behaviour is deteriorating — someone who used to pay in 45 days and now takes 70 is warning you about their own cash flow months before it becomes bad debt. Everything else can be a message.
What not to do
- Don't chase your biggest customer the way you chase a small one. Recovering ₹3 lakh and losing a ₹2 crore relationship is a loss. Weight by what the customer is worth, not just what they owe.
- Don't offer early-payment discounts by default. 2% for 30 days early is an annualised ~24% — far more expensive than your overdraft. Use it only for customers genuinely worth de-risking.
- Don't use a collection agency for ordinary lateness. 10–15% of the recovered amount, and the relationship rarely survives.
Measure it monthly
Calculate DSO on the same day each month and write it down. It moves slowly and it moves in the right direction only if someone is watching it. Track alongside it: total outstanding, amount over 90 days, and how much came in from customers you actually chased.
A 15-day improvement over two quarters is realistic for most businesses that have never systematically chased. It is also, for a ₹5 crore business, about ₹20 lakh.
Upload your Tally outstanding report. We'll show your DSO, what your customers actually average, and how many days of that gap is process rather than behaviour.
Run a free health checkNext: DSO calculator · Spotting a disputed invoice · Reminder message formats