Reducing DSO for Improved Oilfield Service Operations

Collecting receivables as quickly as possible can help oilfield service companies maintain a positive cash flow and reduce reliance on the operating line to pay ongoing expenses. One way to help accomplish this is to measure your DSO and look at ways to lower that number.

What is DSO?

DSO (days sales outstanding) is a measure of the average number of days that it takes a company to collect payment after work has been performed and an invoice issued. It's calculated as follows:

(Accounts receivable balance/total sales) x 365 days = DSO

Reducing DSO

There are several tactics with which you can control your DSO rate:

• Obtain all relevant information before you start the work. When under pressure, the first response is to get going and worry about the paperwork later. Instead, having the correct information at the beginning, including customer contact names, contact data and any preferences for invoice submission, will speed the invoice approval process once your services are delivered. Probably the most critical information to have at the start is the field ticket approval process and whether e-mail approval is acceptable for well-head services.
• Speak your customer's language. Every oilfield service company has its own set of terminology that develops over time. The terminology on your invoice should reflect the billing or project codes of your customer so that they can process the invoice more quickly.
• Capture the correct data as quickly as possible. More and more oilfield service companies are managing field information through electronic tools rather than with paper. These tools allow companies to capture transactional, payroll and operational data in the field, create a field ticket for customer approval, and transmit this data back to headquarters.
• Get the invoice out the door sooner. If your customer needs to enter information from a paper invoice into their electronic system, this can add days to the payment cycle. Many current tools allow you to invoice electronically and also view your account/payment status online.
• Follow up in the right way, at the right time. The best time to contact your customer's accounting department is not when an invoice is past due, but right after you send it. Did you reference the correct billing or project codes? Do you have all necessary approvals for services rendered? Any of these issues could hold up payment for weeks.

Higher than Average DSO

Oilfield service companies carry much higher DSO than other segments of the industry. This reflects the complex cycle of capturing cost of services performed, obtaining field ticket approval and correctly invoicing the customers. Improvement in any of these areas can reduce your DSO; focusing attention to all facets can improve your cash flow.

For more information, contact your Eide Bailly professional.