The safety shock should be 111. So the company is at 102 forecasted forward for what their sales would be. So you already know when you need to place that order. And then based on that and the next inventory round, you can calculate how many units you need to purchase. And again, this is not using turns.
As a calculation, and it's not using 60 days or 90 days inventory because you're calculating your forecast forward based on seasonality and other elements.
We have one more aspect of this. So how can we improve and how can we accelerate these processes? Well, the first thing we're going to look at is: invoice automation. So invoice automation would be moving from, you know, your paper invoice that you send out manually to something that automatically sends out when the sale happens.
So what we see now with more sophisticated, you know, distributors or manufacturers is that they'll have invoicing software that, again, auto-generates the invoice after the sale. So typically, a customer will send a purchase order, the purchase order will go to this company, that will convert to a sales order and then, once it ships, it will convert to an invoice. That invoice will go out automatically upon shipment. So there's invoice automation tools that can help you with this. So just by automating the invoice process, we can knock off two weeks on the day sales outstanding. So that's a huge benefit when it comes to cashflow.
The next aspect of this is: electronic payments. So as we mentioned before in this example, they were only accepting manual checks. There was no way to pay electronically. And again, this is because that's how the business was built, the business grew and we've always been doing things this way. So similar to the invoice automation, there's software tools that can be implemented, sometimes the same tool, to create an electronic payment portal. So, that would require an electronic payment method. Just by taking electronic payments only, this company can lower their DSO by another seven days because there's such a lesser lag one: on electronic payments, but two: through the invoice automation the customer is going to be reminded when their payments due and there's just going to be a better flow of communication to make sure prompt payment happens. There's a paper trail, things will not get lost in the shuffle.
So those are two ways that we think you can really accelerate your processing. So now our new DSO, since we've knocked off 21 days, is 31 days, which is a huge difference and our goal is to get our DSO to net terms, which were 30.
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