Moving to World-class DSO Practices Can Yield Billions in Savings, Hackett Finds

World-class companies get paid nearly 30 percent faster than their peers, advisory firm reports

World-class companies get paid nearly 30 percent faster than their peers, advisory firm reports

Atlanta — March 27, 2006 — World-class finance executives get customers to pay their bills nearly 30 percent faster than typical companies, and enterprises can generate millions in savings every year by moving to best-in-class finance practices, according to new research from advisory firm The Hackett Grou.

In its latest Book of Numbers research, Hackett reports that a typical $10 billion company can generate more than $35.8 million per year in bottom-line savings if it achieves world-class performance in this area by reducing days sales outstanding (DSO), a standard measure of how quickly companies get paid by their customers.

Hackett's research also showed that companies with world-class finance organizations have significantly reduced their DSO over the past three years while typical companies have made only slight improvements. One key strategy of world-class companies in this area has been to dramatically lower billing error rates in order to eliminate any reason for delayed payment.

Freeing up Funds

In addition, these world-class finance organizations have made significant improvements in their invoice-to-cash procedures, driving higher levels of efficiency and effectiveness through the use of Hackett-certified practices such as better cost and pricing analysis, and faster cash application.

The savings garnered by world-class finance organizations through the use of these techniques can improve profitability, or they can be used to fund other high-priority corporate activities, such as strategic initiatives, competitive differentiation or efforts to penetrate new markets.

"Today, the best CFOs are doing an exceptional job of balancing efficiency and effectiveness, and their companies are reaping the benefits," said Hackett Finance Practice Managing Director Mark Krueger. "They're proving it's possible to maintain a focus on business value and generate real bottom-line benefits by doing things like reducing DSO, while at the same time keeping a sharp focus on cost reduction opportunities."

Leaving Opportunity on the Table

Krueger said that the message for typical CFOs is both clear and disturbing: To survive, they cannot wait any longer to close efficiency gaps and implement effectiveness-increasing strategies. "Every day they wait, they're leaving opportunities on the table [that] can have a material impact on their company's profitability," Krueger said.

According to Hackett-REL Customer-to-Cash Practice Leader Robert Smid, other than insolvency, there are two major reasons why customers pay their vendors late: because they have a dispute or because they've been conditioned to do so by the vendor. Both of these are areas that companies can address and reap impressive rewards.

"By reducing how often a bill goes out with the inaccurate pricing, wrong terms or any other mistake, companies can significantly streamline collections," Smid said. "The conditioning process is more complicated. But with the right people and tools in place, companies can develop a better understanding of their customer base and the impact individual customers and customer segments have on their profitability. Then they can take a more proactive, targeted, and strategic approach to collections and significantly reduce DSO."

Growing Cost Gap

According to Hackett, world-class finance organizations now spend 42 percent less in the finance function than typical companies (0.73 percent of revenue versus 1.26 percent), and have 44 percent fewer finance staff (63 employees/ billion of revenue versus 112).

The cost gap between world-class and typical companies is also growing. Typical companies saw an increase in the cost of finance of 18 percent over the past two years, in part due to increased compliance-related costs, while world-class companies continued to reduce overall finance costs over the same period.

The full version of this research is available at

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