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How to Reduce Days Sales Outstanding with Document Management Software

Microdea 2017-01-31 08:00:00
Microdea on Jan 31 2017

Document Management SoftwareIt is in your trucking company’s best interest to collect outstanding receivables as quickly as possible. Regardless of which sector you operate in, collecting cash sooner and shortening your Days Sales Outstanding (DSO) value is of critical importance. Unpaid or late invoices represent actual cash that you could otherwise be reinvesting into other areas of your businesses like purchasing new equipment, hiring new drivers or growing through acquisition.

Let’s look at how automating the accounts receivable process through the use of document management software allows your business to bill and collect cash from your customers faster, improve cash flow and reduce Days Sales Outstanding (DSO).

Accounts Receivable: The Manual Way

In most transportation companies, the AR process tends to be manual and paper-based, causing the potential for human error. Managing the order-to-cash cycle relies on human intervention to receive and process orders, generate a paper invoice to the customer, receive and process the payment, and finally recognize the payment in the accounting system.

A manual AR process also requires more time to perform simple invoice processing activities such as matching supporting documentation to an invoice, one of the most common reasons for late or unpaid bills. The more people involved, the higher costs become.

Manual processes also tend to be inconsistently applied, leading to a lack of process control and visibility. Combined with the inability to send billing documents as they are generated, this overly manual paper-based process is likely inflating your DSO and preventing you from monetizing those receivables in a timely fashion.

How Document Management Software and Automation Can Help Reduce Days Sales Outstanding

A document management system with accounts receivable automation turns those inefficiencies into a streamlined and automated process. A document management system stores all relevant information in a secure, central repository. Imaging and electronic workflow automates the validation of data, activation of exception alerts, and forwarding of supporting documents to the appropriate person.

Faster Billing

One of the easiest ways for transportation companies to reduce DSO is through speeding up the billing process. The longer it takes for a customer to get an invoice, the longer it takes for them to pay it, and for you to get your cash.

For example, let’s say your average time to bill is 17 days and your DSO average is 46 days. By automating your billing process, you may be able to reduce time to bill to three days or less, shaving two full weeks off of your DSO.

How does this work? The document management system could electronically transmit a Bill of Lading (BOL) and associated documents from a point of delivery to the head office, triggering the invoicing process and attaching the associated backup documents together. This billing automation ensures customers are invoiced quickly with all of the supporting documentation they need to process the payment.

While billing your customers faster does not guarantee faster payment, having a consistent payment process and timely billing generally means timely payments.

How One Trucking Company Reduced DSO by 34%

Automated billing has been key to the growth of the business at Hi-Way 9 Group of Companies, in Alberta.

“If we didn’t have a document management system, the billing process would require all manual retrieval and copying, with possible loss of documents,” says Nellis Foesier, Manager, IT/Admin Support.

Use of a document management system and automating the AR process has helped Hi-Way 9 reduce DSO from 40-50 days previously, to 33-36 days now, a reduction of as much as 34%.

“We’ve been recognized as having the best year-to-date DSO across all the trucking companies in the whole Mullen Group of companies (Hi-Way 9’s Parent Company),” says Foesier.

Today, Hi-Way 9’s billing department generates the statements and invoices within their transportation management system (TMS), then the document management system matches the supporting documents to the invoice and sends the set to a designated email address or fax server. The majority of Hi-Way 9’s customers receive invoices by email or fax, with only a very few requiring paper via postal mail. The result has been significant cost and time savings for the company.

Additional Benefits of Automating the A/R Process

  1. Documents are Captured and Tracked Electronically: Capturing supporting documents electronically improves invoice processing efficiencies and reduces human errors. Documents arrive at the right billing desks, in the right format and at the right time.
  2. Improved Efficiency: Better access to the proper billing documents results in faster time-to-bill. Billing departments are able to issue their invoice days faster, in many cases the same day, with the required supporting documentation.
  3. Accommodate Different Document Formats: A document management system provides a single home for all types of documents – be they Excel spreadsheets, emails, scans, pictures, and anything in between – that can be easily organized, and quickly searched. This also eliminates the inefficiencies associated with storing files in a mix of network drives, accounting department file cabinets, file-sharing services, and personal computers.
  4. Reduced Administrative Burden: Reduce costs and tasks associated with printing, folding, stuffing, stamping and mailing of invoices.

Download the Controlling Costs in Transportation whitepaper to learn additional ways automating your back-office processes can help increase cash flow and reduce operating costs in your transportation business.

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 Editor's Note: This post was originally published in 2014 and has been updated for freshness, accuracy, and comprehensiveness.

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Founded in 1995 and headquartered in Markham, Ontario, Microdea is a fast growing document management and automation software company serving hundreds of customers in the transportation and logistics industry, including truckload and LTL carriers, private fleets, brokers and 3PLs.

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