How to Reduce DSO with Accounts Receivable Automation

If you work in accounts receivable, you already know that your ability to turn invoices into cash is the key measure of your success. After all, predictable cash flow is critical to organizational growth, and your leaders want to ensure you’re achieving exactly that. 

It’s not surprising, then, that questions often come up about DSO, or days sales outstanding. And if you’re introducing AR automation, or thinking about it, leadership will want to know: How does AP and AR automation impact DSO and its counterpart, DPO (days payable outstanding)? 

This article answers that question, exploring: 

• What DSO and DPO measure
• How AR automation helps you reduce DSO to improve cash flow
• How AP automation helps optimize DPO without hurting supplier relationships

DSO and DPO are both key ways to determine ongoing cash flow, making them important metrics to look at. 

• DSO measures the average number of days a business takes to collect payments following a credit sale, demonstrating how timely your customers are at paying. Here’s how it’s calculated:
  • DSO = Accounts Receivable / Total Credit Sales × Number of Days
     
• DPO measures the average number of days it takes for your business to pay supplier invoices, demonstrating the effectiveness of your payment strategies. Here’s how it’s calculated:
  • DPO = Accounts Payable / Cost of Goods Sold × Number of Days 

Optimizing both can be a key goal for finance teams introducing automation, but only AR automation directly accelerates customer payments and reduces DSO. With that distinction clear, let’s explore how AR automation reduces DSO and strengthens cash-flow predictability, and how AP automation contributes to healthier DPO.

According to the Credit Research Foundation’s (CRF) National Summary of Domestic Trade Receivables, the median DSO across industries, as of Q2 2025, was 36.70. But DSO varies extensively between industries and businesses, with a DSO of under 45 days typically considered good.  

With AR automation in place, the following strategies can help you reduce your DSO and achieve your benchmarks, making cash flow more predictable. 

When accounts receivable is handled manually, bottlenecks can happen that slow payments down. Automating invoice delivery across multiple channels can help change that, reducing past-due invoices by 30% or more by: 

• Ensuring customers receive invoices on time and are less likely to miss one, reducing the chance of “I never received it” delays, and shortening the payment cycle 
   
• Making sure customers know exactly how much they owe and when payments are due 

Online payment portals give customers 24/7 access to invoices, transaction histories, pay-now options, and communications with your finance team. Versapay customers experience an average portal adoption rate of over 80%—and see a 25% increase in payment speed. They reduce DSO by: 

• Keeping customers informed on payment terms, historical transactions, and upcoming deadlines 
   
• Showing them exactly how much credit they have available 
   
• Making it easier for customers to pay online 

According to the Association for Financial Professionals, 75% of organizations don’t plan on eliminating the use of checks in the next two years. This can contribute to slow processing times and potential for error, leading to a higher DSO. AR automation helps reduce these slowdowns by: 

• Adding digital payment options. According to PYMNTS data, 76% of vendors believe that buyers are more likely to pay on time when they pay electronically.  
   
• Adding more than one payment option. Because loyalty increases when you add multiple digital payment options like automated clearing house (ACH), wire transfers, and virtual credit cards—making it easier for customers to pay their invoices in whichever way works best for them. 

By consolidating payment data and offering higher visibility into key metrics through AR dashboards, AR automation platforms allow your accounts receivable team to apply solutions like predictive insights to analyze historical behaviors and predict future risk of late or non-payment, in order to: 

• Segment your customers based on risk of non-payment, prioritizing earlier interventions and payment reminders 
   
• Personalize communications to better reach the needs of each customer 
   
• Stay more proactive overall, to further reduce payment delays 

Offering the chance to pay less can be an effective way to incentivize customers to pay early. The Association for Financial Professionals, for instance, suggests that offering a discount of 1 to 2% to customers who pay an invoice within the first 10 days of receipt can reduce DSO. But managing those types of discounts manually is time-consuming. AR automation can help by:  

• Making incentives automatic by tracking payments 
   
• Applying discounts based on preset terms  

If you’re responsible for both accounts receivable and accounts payable, it’s your responsibility to both collect and pay in a way that ensures you always have working capital available. To do that, DPO will also be an important metric to consider. An optimal DPO will depend on your specific business strategies and goals:  

• A high DPO means you’re taking longer on average to pay your invoices, which gives you more cash flow available for short-term investing but could also mean you’re putting relationships with suppliers at risk.
   
• A low DPO may lead to better supplier relationships, but could mean less available cash flow.  

Finding the right balance is key—and again, the following automation strategies can help. 

By digitizing your AP data, you give your team real-time access to the status of each invoice being processed, as well as your current cash flow. Automated workflows move invoices efficiently through the approval process and capture early payment discounts, while also reducing errors like overpayment.  

Supplier portals provide a single location to communicate with suppliers, strengthening your relationships and building a more collaborative approach to the payment process. By providing a direct conduit with suppliers, these portals also let you better understand each relationship, helping you build mutual trust and giving you a better footing to negotiate favorable payment terms. 

An AP automation platform can ensure you’re timing your payments in a way that optimizes DPO. For instance, you may opt to prioritize payments to your most critical or strategic suppliers, then follow up with later payments to your less critical suppliers—negotiating extended terms so that you have more cash flow available. This ensures invoices are paid neither too late nor too early, to maximize your cash flow while also maintaining strong supplier relationships. 

More and more finance teams are learning how to reduce DSO and DPO through AR and AP automation. Automated AR and AP solutions allow finance teams to build a more collaborative end-to-end process for both sides of the payment practice. 

Take Versapay customer Gulf Coast Panama Jack, for example. The wholesale distribution business experienced a 67% decrease in their DSO after introducing AR automation—moving from 30 days to 10. And global IT services provider TrimaxSecure shaved 10 days off its DSO after implementing AR automation. 

“That amount of time saved is pretty significant,” says Hakki Isik, CEO of TrimaxSecure. “We no longer need to update payments in one system and manually update customer invoice statuses in another. Once we post an invoice, it’s automatically sent to our customers, and once they’ve paid, invoice statuses are automatically updated.” 

Reducing DSO and optimizing DPO ultimately comes down to creating a more reliable, transparent, and efficient payments ecosystem. AR automation gives finance teams the tools to accelerate customer payments, reduce manual work, and strengthen forecast accuracy—while AP automation helps improve the timing of outbound payments. Together, these improvements create a more predictable cash-flow cycle and give finance leaders the visibility they need to plan investments, manage working capital more effectively, and support sustainable growth.