What a rising DSO tells a telecom provider
What a climbing DSO can reveal about a provider's subscribers, its sales team and its credit checks, and how to read the aged debtors behind the number.
By Achekam · · 5 min read · For Telecoms businesses in South Africa, Nigeria, Kenya
Days sales outstanding is one of those numbers that finance teams report every month and nobody else reads. For an internet, voice or mobile provider it deserves more attention. When DSO starts climbing, it is usually the first place a problem elsewhere in the business shows up in money: unhappy subscribers, a sales team bending the rules, or customers who should never have been given credit.
DSO is commonly worked out as trade receivables at the end of a period, divided by credit sales for the period, multiplied by the number of days in it. A higher figure means customers are taking longer, on average, to pay. This article looks at what can push it up, how to tell a real change from a misleading one, and how to find the cause in your own aged debtors.
Three stories a rising DSO can tell
Investopedia warns that a rising DSO is a warning sign that customer satisfaction may be falling, that salespeople may be offering longer payment terms, or that customers with poor credit may be buying on credit. Its explanation of days sales outstanding covers how the measure is calculated and where it misleads. Each of its three causes has a recognisable shape in a provider.
Subscribers who are unhappy
A business customer whose line dropped for three days last month may not dispute the invoice formally. They may simply pay it late, or short, while they wait for a credit they believe they are owed. A wave of outages, a billing system change that confused people, or a price increase that was poorly explained can all show up as slower payment weeks before they show up as cancellations.
Look for it in the pattern: customers who always paid on time suddenly paying late, and support tickets for the same customers open at the same time.
A sales team offering terms
Sales targets reward contracts signed, not cash collected. If salespeople have been allowed, or have started, to promise longer terms to close deals, DSO rises with every new contract. The give-away is a jump concentrated in new business customers, often around quarter-ends when targets bite. The cost of longer payment terms sets out what that habit costs.
Customers who should not have had credit
Investopedia also explains that lower credit standards boost sales but increase bad debts. In a growth push, a provider may connect businesses without checking how they pay their other suppliers. Some of those customers pay late from the first invoice. Their balances move steadily into the older age bands and stay there.
When sales growth distorts the number
DSO is a ratio, and sales sit in the bottom half of it. Investopedia notes that changes in sales volume can affect DSO, with higher sales often lowering it, so it is not a perfect measure of how well receivables are managed.
For a provider in a growth phase, that cuts both ways. A big month of new connections, each with its first invoice not yet due, can make DSO look healthier than collections really are. A month when growth slows can make DSO jump even though nobody is paying any later. Before reacting to a change in DSO, check what happened to sales in the same months.
Seasons and fair comparisons
Investopedia advises tracking DSO trends over time rather than relying on a single period, and comparing it only with companies in the same industry with similar business models. It adds that seasonal businesses may see DSO vary regularly by month.
Providers have their own seasons. Business customers may pay more slowly over the year-end holidays when their finance teams are away; schools and campuses connected on annual contracts follow the academic calendar; some sectors pay slowly at their own financial year end. So:
- Compare this month's DSO with the same month last year, not only with last month.
- Use a rolling average of several months to smooth one-off swings.
- Compare yourself with providers selling to similar customers. A prepaid mobile business and a fibre provider serving corporates will never have comparable figures.
Looking behind the number in your aged debtors
DSO tells you that something has changed. The aged debtors tell you where. In Achekam, receivables are aged into 0-30, 31-60, 61-90, 91-120 and over 120 days, with overdue totals, and management accounts show an income statement for the period beside the period before and a balance sheet at period end, all added up from the business's own journals. Between them you have both halves of the DSO calculation and the detail behind it.
Work through it in this order:
- Which band grew? Growth in 31-60 days suggests slower payment by ordinary customers; growth over 90 days suggests customers who are not paying at all.
- Which customers drove it? A handful of large business accounts behaves very differently from a general drift across many subscribers.
- When were they signed and by whom? If the slow payers are recent contracts from one salesperson or one campaign, you have found the cause.
- Are there open complaints? Match the slow payers against support tickets and credit requests.
For the wider picture of how the measure works across industries, see days sales outstanding explained.
Tightening credit and reminders
Once you know the cause, the fix follows from it. Unhappy subscribers need their complaints resolved and any credits they are owed issued, after which payment usually returns to normal. A sales team offering terms needs a written rule on who may approve non-standard terms. Customers with poor credit need checks before connection and, for those already connected, a firmer approach.
Reminders help with every cause. Achekam's credit control is on for new workspaces: once a day it e-mails overdue reminders, by default at 7, 14 and 30 days overdue with the invoice PDF attached, plus a monthly statement to customers with a balance. It never charges anyone and records whether each e-mail went out, and it needs working e-mail settings. A statement of account can also be produced as a PDF and e-mailed on request, with the screen confirming whether it was sent. For subscribers who have fallen well behind, payment arrangements for subscribers in arrears covers the next step.
A monthly habit
Report DSO each month with two companions: the sales figure for the same period and a one-line note on which age band moved. A number with its context gets read; a number on its own gets ignored.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
